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2013 Smarter Regulations for Small and Medium-Size EnterprisesCOMPARING BUSINESS REGULATIONS FOR DOMESTIC FIRMS IN 185 ECONOMIES A COPUBLICATION OF THE WORLD BANK AND THE INTERNATIONAL FINANCE CORPORATION

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RESOURCES ON THE DOING BUSINESS WEBSITECurrent features Doing Business reformsNews on the Doing Business project Short summaries of DB2013 business regulationhttp://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation toolRankings http://www.doingbusiness.org/reforms/How economies rank—from 1 to 185http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004Data http://www.doingbusiness.org/custom-query/All the data for 185 economies—topic rankings,indicator values, lists of regulatory procedures and Law librarydetails underlying indicators Online collection of business lawshttp://www.doingbusiness.org/data/ and regulations relating to business and gender issuesReports http://www.doingbusiness.org/law-library/Access to Doing Business reports as well as http://wbl.worldbank.org/subnational and regional reports, reform casestudies and customized economy and regional Contributorsproﬁles More than 9,600 specialists in 185 economieshttp://www.doingbusiness.org/reports/ who participate in Doing Business http://www.doingbusiness.org/contributors/Methodology doing-business/The methodologies and research papers underlyingDoing Business NEW! Entrepreneurship datahttp://www.doingbusiness.org/methodology/ Data on business density for 130 economies http://www.doingbusiness.org/data/exploretopics/Research entrepreneurship/Abstracts of papers on Doing Business topics andrelated policy issues More to comehttp://www.doingbusiness.org/research/ Coming soon—information on good practices and data on transparency and on the distance to frontier

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Contents v Preface 1 Executive summary 15 About Doing Business: measuring for impact Case studies 26 Colombia: sustaining reforms over time 32 Latvia: maintaining a reform state of mind 37 Rwanda: fostering prosperity by promoting entrepreneurship 42 APEC: sharing goals and experience 47 Does Doing Business matter for foreign direct investment? 51 How transparent is business regulation around the world? Topic notes 56 Starting a business 60 Dealing with construction permits 64 Getting electricity 68 Registering property 72 Getting creditDoing Business 2013 is the 10th in a 77 Protecting investorsseries of annual reports investigating 81 Paying taxesthe regulations that enhance business 86 Trading across bordersactivity and those that constrain it. DoingBusiness presents quantitative indicators 90 Enforcing contractson business regulations and the protection 94 Resolving insolvencyof property rights that can be comparedacross 185 economies—from Afghanistanto Zimbabwe—and over time. 98 Annex: employing workersRegulations affecting 11 areas of the life 101 Referencesof a business are covered: starting a busi- 106 Data notesness, dealing with construction permits,getting electricity, registering property, 131 Ease of doing business and distance to frontiergetting credit, protecting investors, paying 135 Summaries of Doing Business reforms in 2011/12taxes, trading across borders, enforcingcontracts, resolving insolvency and em- 145 Country tablesploying workers. The employing workers 207 Employing workers datadata are not included in this year’s rankingon the ease of doing business. 216 AcknowledgmentsData in Doing Business 2013 are current asof June 1, 2012. The indicators are used toanalyze economic outcomes and identifywhat reforms of business regulation haveworked, where and why.

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vPrefaceThis is the 10th edition of the Doing Business report. First published in 2003 with 5indicator sets measuring business regulation in 133 economies, the report has growninto an annual publication covering 11 indicator sets and 185 economies. In these 10years Doing Business has recorded nearly 2,000 business regulation reforms in the ar-eas covered by the indicators. And researchers have produced well over 1,000 articlesin peer-reviewed journals using the data published by Doing Business—work that helpsexplore many of the key development questions of our time.Doing Business 2013 holds new information to inspire policy makers and research-ers. One ﬁnding is that Poland improved the most in the Doing Business measures in2011/12, while Singapore maintains its top spot in the overall ranking. Another ﬁndingis that European economies in ﬁscal distress are making efforts to improve the businessclimate, and this is beginning to be reﬂected in the indicators tracked by Doing Business,with Greece being among the 10 economies that improved the most in the DoingBusiness measures in the past year. Part of the solution to high debt is the recovery ofeconomic growth, and there is broad recognition that creating a friendlier environmentfor entrepreneurs is central to this goal. But perhaps the most exciting ﬁnding is that ofa steady march from 2003 to 2012 toward better business regulation across the widerange of economies included. With a handful of exceptions, every economy covered byDoing Business has narrowed the gap in business regulatory practice with the top globalperformance in the areas measured by the indicators. This is a welcome race to the top.Collecting the more than 57,000 unique Doing Business data points each year andplacing them in a broader context of economic policy and development is a majorundertaking. We thank the team and the Doing Business contributors for their efforts.Data collection and analysis for Doing Business 2013 were conducted through the GlobalIndicators and Analysis Department under the general direction of Augusto Lopez-Claros. The project was managed by Sylvia Solf and Rita Ramalho, with the supportof Carolin Geginat and Adrian Gonzalez. Other team members included Beatriz MejiaAsserias, Andres Baquero Franco, Karim O. Belayachi, Iryna Bilotserkivska, MarianaCarvalho, Hayane Chang Dahmen, Rong Chen, Maya Choueiri, Dariga Chukmaitova,Santiago Croci Downes, Fernando Dancausa Diaz, Marie Lily Delion, Raian Divanbeigi,Alejandro Espinosa-Wang, Margherita Fabbri, Caroline Frontigny, Betina Hennig,Sarah Holmberg, Hussam Hussein, Joyce Ibrahim, Ludmila Jantuan, Nan Jiang, HervéKaddoura, Paweł Kopko, Jean Michel Lobet, Jean-Philippe Lodugnon-Harding, FrédéricMeunier, Robert Murillo, Joanna Nasr, Marie-Jeanne Ndiaye, Nuria de Oca, Mikiko ImaiOllison, Nina Paustian, Galina Rudenko, Valentina Saltane, Lucas Seabra, Paula GarciaSerna, Anastasia Shegay, Jayashree Srinivasan, Susanne Szymanski, Moussa Traoré,Tea Trumbic, Marina Turlakova, Julien Vilquin, Yasmin Zand and Yucheng Zheng.More than 9,600 lawyers and other professionals generously donated their time toprovide the legal assessments that underpin the data. We thank in particular the globalcontributors: Advocates for International Development; Allen & Overy LLP; American

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vi DOING BUSINESS 2013 Bar Association, Section of International Law; Baker & McKenzie; Cleary Gottlieb Steen & Hamilton LLP; Ernst & Young; Ius Laboris, Alliance of Labor, Employment, Beneﬁts and Pensions Law Firms; KPMG; the Law Society of England and Wales; Lex Mundi, Association of Independent Law Firms; Panalpina; PwC; Raposo Bernardo & Associados; Russell Bedford International; SDV International Logistics; and Security Cargo Network. The efforts of all these contributors help maintain the distinctive voice of Doing Business and its annual contribution to business regulation reform. Ten years marks a good time to take stock of where the world has moved in business regulatory practices and what challenges remain. We welcome you to give feedback on the Doing Business website (http://www.doingbusiness.org) and join the conversation as we shape the project in the years to come. Sincerely, Janamitra Devan Vice President and Head of Network Financial & Private Sector Development World Bank Group

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1Executive summaryThis 10th edition of the Doing Business And it highlights both the areas of busi- MAIN FINDINGS IN 2011/12report marks a good time to take stock— ness regulation that have received the  Worldwide, 108 economiesto look at how far the world has come in most attention and those where more implemented 201 regulatory reformsbusiness regulatory practices and what progress remains to be made. in 2011/12 making it easier to dochallenges remain. In the ﬁrst report one business as measured by Doingof the main ﬁndings was that low-income The report also reviews research on Business.economies had very cumbersome regula- which regulatory reforms have workedtory systems. Ten years later it is appar- and how. After 10 years of data tracking  Poland improved the most in theent that business regulatory practices in reforms and regulatory practices around ease of doing business, throughthese economies have been gradually but the world, more evidence is available to 4 reforms—making it easier tonoticeably converging toward the more address these questions. The report sum- register property, pay taxes, enforceefficient practices common in higher- marizes just some of the main ﬁndings. contracts and resolve insolvency as Among the highlights: Smarter business measured by Doing Business.income economies (box 1.1). How muchhas the gap narrowed? Did some regions regulation supports economic growth.  Eastern Europe and Central Asiaclose the regulatory gap more rapidly Simpler business registration promotes once again had the largest share ofthan others? This year’s report tells that greater entrepreneurship and ﬁrm pro- economies implementing regulatorystory. It points to important trends in ductivity, while lower-cost registration reforms—88% of its economiesregulatory reform and identiﬁes the re- improves formal employment opportuni- reformed in at least one of the areasgions and economies making the biggest ties. An effective regulatory environment measured by Doing Business.improvements for local entrepreneurs. boosts trade performance. And sound  European economies in ﬁscal distress are working to improve BOX 1.1 MAIN FINDINGS SINCE 2003 AND THE FIRST DOING BUSINESS REPORT the business climate, and this is • Over these 10 years 180 economies implemented close to 2,000 business regula- beginning to be reﬂected in the tory reforms as measured by Doing Business. indicators tracked by Doing Business. • Eastern Europe and Central Asia improved the most, overtaking East Asia and the Greece is one of the 10 most Paciﬁc as the world’s second most business-friendly region according to Doing improved globally in 2011/12. Business indicators. OECD high-income economies continue to have the most business-friendly environment.  Reform efforts globally have focused • Business regulatory practices have been slowly converging as economies with on making it easier to start a new initially poor performance narrow the gap with better performers. Among the 50 business, increasing the efﬁciency economies with the biggest improvements since 2005, the largest share—a third— of tax administration and facilitating are in Sub-Saharan Africa. trade across international borders. Of • Among the categories of business regulatory practices measured by Doing Business, the 201 regulatory reforms recorded there has been more convergence in those that relate to the complexity and cost in the past year, 44% focused on of regulatory processes (business start-up, property registration, construction per- mitting, electricity connections, tax payment and trade procedures) than in those these 3 policy areas alone. that relate to the strength of legal institutions (contract enforcement, insolvency regimes, credit information, legal rights of borrowers and lenders and the protection of minority shareholders). • Two-thirds of the nearly 2,000 reforms recorded by Doing Business were focused on reducing the complexity and cost of regulatory processes. • A growing body of research has traced out the effects of simpler business regulation on a range of economic outcomes, such as faster job growth and an accelerated pace of new business creation.

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2 DOING BUSINESS 2013 ﬁnancial market infrastructure—courts, resolving insolvency. Doing Business also relatively efficient regulatory processes creditor and insolvency laws, and credit documents regulations on employing but still lag in the strength of legal insti- and collateral registries—improves ac- workers, which are not included in this tutions relevant to business regulation. cess to credit (see the chapter “About year’s aggregate ranking or in the count Good practices around the world provide Doing Business”). of reforms. insights into how governments have improved the regulatory environment in The economies that rank highest on the the past in the areas measured by Doing WHAT ARE SMART RULES FOR ease of doing business are not those Business (see table 1.4 at the end of the BUSINESSES? where there is no regulation—but those executive summary). Just as good rules are needed to allow where governments have managed to traffic to ﬂow in a city, they are also es- create rules that facilitate interactions sential to allow business transactions WHO NARROWED THE in the marketplace without needlessly to ﬂow. Good business regulations REGULATORY GAP IN 2011/12? hindering the development of the private enable the private sector to thrive and sector. In essence, Doing Business is As reﬂected in the ranking on the ease of businesses to expand their transactions about SMART business regulations— doing business, the 10 economies with network. But regulations put in place to Streamlined, Meaningful, Adaptable, the most business-friendly regulation are safeguard economic activity and facilitate Relevant, Transparent—not necessarily Singapore; Hong Kong SAR, China; New business operations, if poorly designed, fewer regulations (see ﬁgure 2.1 in the Zealand; the United States; Denmark; can become obstacles to doing business. chapter “About Doing Business”). Norway; the United Kingdom; the They can be like traffic lights put up to Republic of Korea; Georgia; and Australia prevent gridlock—ineffective if a red light Doing Business encompasses 2 types of in- (table 1.1). Singapore tops the global rank- lasts for an hour. Most people would run dicators: indicators relating to the strength ing for the seventh consecutive year. the red light, just as most businesses of legal institutions relevant to business facing burdensome regulations will try to regulation and indicators relating to the A number 1 ranking on the ease of doing circumvent them to stay aﬂoat. complexity and cost of regulatory processes. business does not mean that an economy Those in the ﬁrst group focus on the legal ranks number 1 across all 10 regulatory Striking the right balance in business and regulatory framework for getting areas included in this aggregate measure. regulation can be a challenge. It becomes credit, protecting investors, enforcing Indeed, Singapore’s rankings range an even greater challenge in a changing contracts and resolving insolvency. Those from 1 in trading across borders to 36 in world, where regulations must continu- in the second focus on the cost and ef- registering property. Its top 3 rankings ally adapt to new realities. Just as traffic ﬁciency of regulatory processes for start- (on trading across borders, dealing with systems have to adjust when a new road ing a business, dealing with construction construction permits and protecting is being constructed, regulations need to permits, getting electricity, registering investors) average 2, while its lowest 3 adapt to new demands from the market property, paying taxes and trading across (on registering property, getting credit and to changes in technology (such borders. Based on time-and-motion case and enforcing contracts) average 20. as the growing use of information and studies from the perspective of the busi- Similarly, Guatemala’s top 3 (on getting communication technology in business ness, these indicators measure the proce- credit, registering property and getting processes). dures, time and cost required to complete electricity) average 22, and its bottom a transaction in accordance with relevant 3 (on paying taxes, protecting investors This challenge is one focus of this report. and starting a business) average 151. So regulations. (For a detailed explanation of Through indicators benchmarking 185 while the ease of doing business ranking the Doing Business methodology, see the economies, Doing Business measures is a useful aggregate measure, analysis data notes and the chapter “About Doing and tracks changes in the regulations Business.”) based on this measure should also take applying to domestic small and medium- into account the dispersion of regulatory size companies in 11 areas in their life Economies that rank high on the ease of efficiency across the areas measured by cycle. This year’s aggregate ranking on doing business tend to combine efficient Doing Business (ﬁgure 1.2). the ease of doing business is based on regulatory processes with strong legal in- indicator sets that measure and bench- stitutions that protect property and inves- In the past year 58% of economies cov- mark regulations affecting 10 of those tor rights (ﬁgure 1.1). OECD high-income ered by Doing Business implemented at areas: starting a business, dealing with economies have, by a large margin, the least 1 institutional or regulatory reform construction permits, getting electric- most business-friendly regulatory envi- making it easier to do business in the ar- ity, registering property, getting credit, ronment on both dimensions. Regions eas measured, and 23 undertook reforms protecting investors, paying taxes, trading such as East Asia and the Paciﬁc and in 3 or more areas. Of these 23 econo- across borders, enforcing contracts and the Middle East and North Africa have mies, 10 stand out as having jumped

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4 DOING BUSINESS 2013 FIGURE 1.1 OECD high-income economies combine efﬁcient regulatory processes with strong ahead the most in the relative ranking legal institutions (table 1.2). Others in this group advanced Average ranking on sets of Doing Business indicators less in the global ranking because they Stronger Stronger legal institutions but Stronger legal institutions and already ranked high. Two are Korea and more complex and expensive simpler and less expensive the Netherlands. Already among the regulatory processes regulatory processes Eastern Europe 29 top 35 in last year’s global ranking, both & Central Asia implemented regulatory reforms making Average ranking on ease OECD of doing business high income it easier to do business in 4 areas mea- 73 sured by Doing Business. Strength of legal institutions Size of bubble reflects number of economies Latin America Four of the 10 economies improving the East Asia & Caribbean & Pacific most in the ease of doing business are 97 86 South Asia in Eastern Europe and Central Asia—the 121 region that also had the largest number 98 Sub-Saharan Middle East of regulatory reforms per economy in the Africa & North Africa past year. Four of the 10 are lower-middle- 140 income economies; of the rest, 1 is low income, 3 are upper middle income and 2 are high income. And for the ﬁrst time Weaker legal institutions and Weaker legal institutions but more complex and expensive simpler and less expensive in 7 years, a South Asian economy—Sri Weaker regulatory processes regulatory processes Lanka—ranks among those improving the Complex and Complexity and cost Simple and most in the ease of doing business. expensive of regulatory processes inexpensive Note: Strength of legal institutions refers to the average ranking on getting credit, protecting investors, enforcing contracts and Eight of the 10 economies made it resolving insolvency. Complexity and cost of regulatory processes refers to the average ranking on starting a business, dealing with construction permits, getting electricity, registering property, paying taxes and trading across borders. easier to start a business. Kazakhstan, Source: Doing Business database. Mongolia and Ukraine reduced or elimi- nated the minimum capital requirement TABLE 1.2 The 10 economies improving the most across 3 or more areas measured by Doing Business in 2011/12 Reforms making it easier to do business Ease of Dealing doing with Trading business Starting a construction Getting Registering Getting Protecting Paying across Enforcing Resolving Economy rank business permits electricity property credit investors taxes borders contracts insolvency 1 Poland 55 2 Sri Lanka 81 2 Ukraine 137 4 Uzbekistan 154 5 Burundi 159 6 Costa Rica 110 6 Mongolia 76 8 Greece 78 9 Serbia 86 10 Kazakhstan 49 Note: Economies are ranked on the number of their reforms and on how much they improved in the ease of doing business ranking. First, Doing Business selects the economies that implemented reforms making it easier to do business in 3 or more of the 10 topics included in this year’s aggregate ranking. Regulatory reforms making it more difﬁcult to do business are subtracted from the number of those making it easier to do business. Second, Doing Business ranks these economies on the increase in their ranking on the ease of doing business from the previous year. The increase in economy rankings is not calculated using the published ranking of last year but by using a comparable ranking for DB2012 that captures the effects of other factors, such as the inclusion this year of 2 new economies in the sample, Barbados and Malta. The choice of the most improved economies is determined by the largest improvement in rankings, among those economies with at least 3 reforms. Source: Doing Business database.

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EXECUTIVE SUMMARY 5FIGURE 1.2 An economy’s regulatory environment may be more business-friendly in some areas than in others Average ranking180 Average of lowest 3 topic rankings160 Average of140 all topic rankings Average of120 highest 3 topic rankings100 80 60 40 20 0 KOREA, REP. EGYPT, ARAB REP. SINGAPORE NEW ZEALAND UNITED STATES GEORGIA AUSTRALIA ICELAND TAIWAN, CHINA MAURITIUS ESTONIA GERMANY SAUDI ARABIA SWITZERLAND LATVIA JAPAN NETHERLANDS SLOVENIA BELGIUM BAHRAIN ARMENIA OMAN PERU RWANDA ISRAEL SLOVAK REPUBLIC MEXICO LUXEMBOURG HUNGARY BELARUS MONTENEGRO FIJI ST. VINCENT AND THE GRENADINES TURKEY GHANA SEYCHELLES MONGOLIA CZECH REPUBLIC KYRGYZ REPUBLIC VANUATU ITALY KUWAIT BARBADOS MARSHALL ISLANDS NAMIBIA SOLOMON ISLANDS MOLDOVA ST. KITTS AND NEVIS GUATEMALA URUGUAY VIETNAM JORDAN BELIZE MALTA NEPAL LEBANON PALAU GUYANA KIRIBATI ETHIOPIA NICARAGUA INDONESIA UGANDA ARGENTINA BANGLADESH PHILIPPINES NIGERIA BHUTAN ECUADOR UKRAINE TAJIKISTAN GAMBIA, THE SUDAN SYRIAN ARAB REPUBLIC SIERRA LEONE BURKINA FASO IRAQ TIMOR-LESTE COMOROS MALAWI BURUNDI ALGERIA MAURITANIA TOGO SENEGAL DJIBOUTI ANGOLA NIGER CÔTE D’IVOIRE ERITREA CHAD CENTRAL AFRICAN REPUBLICNote: Rankings reﬂected are those on the 10 Doing Business topics included in this year’s aggregate ranking on the ease of doing business. Figure is for illustrative purposes only; it does notinclude all 185 economies covered by this year’s report. See the country tables for rankings on the ease of doing business and each Doing Business topic for all economies.Source: Doing Business database.for company incorporation. Sri Lanka by updating the documentation require- Business—improving its regulatory en-computerized and expedited the process ments for bankruptcy ﬁlings. vironment at a greater pace in the pastfor registering employees. Burundi elimi- year than in any of the previous 6. It made Four economies made it easier to registernated 3 requirements: to have company construction permitting faster by trans- property. Poland increased efficiency indocuments notarized, to publish informa- ferring the planning approval process processing property registration applica-tion on new companies in a journal and to from the municipality to certiﬁed private tions through a series of initiatives inregister new companies with the Ministry recent years. These included creating 2 professionals, strengthened investor pro-of Trade and Industry. new registration districts in Warsaw and, tections by requiring greater disclosure in the past year, introducing a new case- and introduced a new prebankruptcy re-Five of the 10 made it easier to resolve in- habilitation procedure aimed at enhanc- load management system for the landsolvency, and 2 of these also strengthened ing the rescue of distressed companies. and mortgage registries and continuingtheir systems for enforcing contracts. to digitize their records.Serbia strengthened its insolvency pro- Costa Rica, the only economy in Latincess by introducing private bailiffs, pro- Five economies improved in the area of America and the Caribbean in the grouphibiting appeals of the court’s decision on getting credit. Costa Rica, Mongolia and of 10, implemented regulatory changesthe proposal for enforcement, expediting Uzbekistan guaranteed borrowers’ right in 4 areas measured by Doing Business.service of process and adopting a public to inspect their personal credit data. Sri It introduced a risk-based approach forelectronic registry for injunctions. The Lanka established a searchable electronic granting sanitary approvals for businessnew private bailiff system also increased collateral registry and issued regulations start-ups and established online approval for its operation. Kazakhstan strength-efficiency in enforcing contracts. Poland systems for the construction permitting ened the rights of secured creditors inintroduced a new civil procedure code process. Costa Rica also guaranteed insolvency proceedings.that, along with an increase in the num- borrowers’ right to inspect their personalber of judges, reduced the time required Greece, driven in part by its economic data and made paying taxes easier forto enforce a commercial contract. Poland crisis, implemented regulatory re- local companies by implementing elec-also made it easier to resolve insolvency, forms in 3 areas measured by Doing tronic payments for municipal taxes.

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6 DOING BUSINESS 2013 While these 10 economies improved economies registering improvements, over time by showing the distance of each the most in the ease of doing business, with 88% of economies implementing at economy to the “frontier,” which repre- they were far from alone in introducing least 1 institutional or regulatory reform sents the best performance observed improvements in the areas measured making it easier to do business and 67% on each of the Doing Business indicators by Doing Business in 2011/12. A total implementing at least 2 (ﬁgure 1.3). across all economies and years included of 108 economies did so, through 201 This region has been consistently active since 2005. The measure is normalized institutional and regulatory reforms. through all the years covered by Doing to range between 0 and 100, with 100 And in the years since the ﬁrst report Business, implementing 397 institutional representing the frontier. A higher score was published in 2003, 180 of the 185 and regulatory reforms since 2005. At therefore indicates a more efficient busi- economies covered by Doing Business least some of this regulatory reform push ness regulatory system (for a detailed made improvements in at least one of reﬂects efforts by economies joining the description of the methodology, see the these areas—through nearly 2,000 such European Union in 2004 to continue to chapter on the ease of doing business and reforms in total. narrow the gap in regulatory efficiency distance to frontier). with established EU members—as well In 2011/12 starting a business was again Analysis based on the distance to frontier as similar efforts among economies now the area with the most regulatory reforms. measure shows that the burden of regula- engaged in EU accession negotiations. In the past 8 years the start-up process tion has declined since 2005 in the areas received more attention from policy mak- measured by Doing Business. On average WHO HAS NARROWED THE the 174 economies covered by Doing ers than any other area of business regu- GAP OVER THE LONG RUN? Business since that year are today closer lation tracked by Doing Business—through 368 reforms in 149 economies. These To complement the ease of doing busi- to the frontier in regulatory practice (ﬁg- worldwide efforts reduced the average ness ranking, a relative measure, last ure 1.4). In 2005 these economies were time to start a business from 50 days year’s Doing Business report introduced 46 percentage points from the frontier to 30 and the average cost from 89% of the distance to frontier, an absolute mea- on average, with the closest economy 10 income per capita to 31%. sure of business regulatory efficiency. percentage points away and the furthest This measure aids in assessing how much one 74 percentage points away. Now In the past year Eastern Europe and Central the regulatory environment for local en- these 174 economies are 40 percentage Asia once again had the largest share of trepreneurs improves in absolute terms points from the frontier on average, with FIGURE 1.4 Almost all economies are closer to the frontier in regulatory practice today than they were in 2005 Distance to frontier (percentage points) 100 90 80 70 60 50 40 30 0 KOREA, REP. SINGAPORE NEW ZEALAND UNITED STATES HONG KONG SAR, CHINA IRELAND CANADA UNITED KINGDOM NORWAY DENMARK FINLAND AUSTRALIA SWEDEN GERMANY ICELAND JAPAN AUSTRIA NETHERLANDS ESTONIA SWITZERLAND BELGIUM LITHUANIA MALAYSIA SPAIN ISRAEL SOUTH AFRICA LATVIA PUERTO RICO (U.S.) TAIWAN, CHINA THAILAND FIJI PORTUGAL CHILE SLOVAK REPUBLIC ITALY UNITED ARAB EMIRATES ST. LUCIA FRANCE MAURITIUS HUNGARY MEXICO NAMIBIA TONGA PANAMA ANTIGUA AND BARBUDA OMAN BOTSWANA DOMINICA SAUDI ARABIA SEYCHELLES BULGARIA PERU JAMAICA BELIZE SLOVENIA ROMANIA TUNISIA KUWAIT MONGOLIA SAMOA ST. VINCENT AND THE GRENADINES TURKEY VANUATU ARMENIA MALDIVES CZECH REPUBLIC GRENADA PAKISTAN MACEDONIA, FYR POLAND TRINIDAD AND TOBAGO GUYANA ST. KITTS AND NEVIS KIRIBATI VIETNAM MOLDOVA KENYA GREECE LEBANON COLOMBIA SRI LANKA NEPAL GHANA EL SALVADOR PALAU SWAZILAND PAPUA NEW GUINEA Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The data refer to the 174 economies included in Doing Business 2006 (2005). Eleven economies were added in subsequent years. Source: Doing Business database.

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8 DOING BUSINESS 2013 FIGURE 1.5 Doing business is easier today than in 2005, particularly in Eastern Europe and Central Improvements happened across all regu- Asia and Sub-Saharan Africa latory areas measured by Doing Business Average distance to frontier (percentage points) between 2005 and 2012. But govern- ments were more likely to focus their 100 reform efforts on reducing the complex- OECD high income ity and cost of regulatory processes—the 75 focus of 1,227 reforms recorded by Doing 70 Business since 2005—than on strength- Gap between OECD high-income economies and rest of the world Eastern Europe 65 & Central Asia ening legal institutions—the focus of East Asia & Pacific close to 600 (ﬁgure 1.6). 60 Latin America & Caribbean Middle East & North Africa 55 Improving business regulation is a chal- South Asia lenging task, and doing it consistently 50 Sub-Saharan Africa over time even more so. Yet some econo- 45 mies have achieved considerable success since 2005 in doing just that (table 1.3). A 40 few of these economies stand out within 0 their region: Georgia, Rwanda, Colombia, 2005 2006 2007 2008 2009 2010 2011 2012 China and Poland. Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any Georgia is the top improver since 2005 economy on each Doing Business indicator since 2005. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The data refer to the 174 economies included in Doing Business 2006 (2005) both in Eastern Europe and Central Asia and to the regional classiﬁcations that apply in 2012. Eleven economies were added in subsequent years. and globally. With 35 institutional and Source: Doing Business database. regulatory reforms since 2005, Georgia has improved in all areas measured by Doing Business. In the past year alone it improved in 6 areas. As just one example, FIGURE 1.6 Globally, reform efforts have focused more on reducing the complexity and cost Georgia made trading across borders of regulatory processes than on strengthening legal institutions easier by introducing customs clearance Average distance to frontier (percentage points) zones in such cities as Tbilisi and Poti. These one-stop shops for trade clearance 100 processes are open all day every day, 80 allowing traders to submit customs docu- 70 Strength of legal institutions ments and complete other formalities in a single place. Georgia also strengthened 60 its secured transactions system. A new 50 amendment to its civil code allows a se- 40 curity interest to extend to the products, Complexity and cost of regulatory processes 30 proceeds and replacements of an asset used as collateral. 0 Georgia has also distinguished itself by Dealing Starting a Registering Paying Trading Enforcing Protecting Getting Resolving with business property taxes across contracts investors credit insolvency following a relatively balanced regulatory construction borders reform path. Many economies aiming to permits 2012 improve their regulatory environment 2005 start by reducing the complexity and cost of regulatory processes (in such areas as Note: Figure illustrates the extent to which average regulatory practice across economies has moved closer to the most efﬁcient practice in each area measured by Doing Business. The distance to frontier measure shows how far on average an starting a business). Later they may move economy is from the best performance achieved by any economy on each Doing Business indicator since 2005. The measure is on to reforms strengthening legal institu- normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The data refer to the 174 economies included in Doing Business 2006 (2005). Eleven economies were added in subsequent years. tions relevant to business regulation Source: Doing Business database. (in such areas as getting credit). These tend to be a bigger challenge, sometimes requiring amendments to key pieces of legislation rather than simply changes in

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EXECUTIVE SUMMARY 9 TABLE 1.3 The 50 economies narrowing BOX 1.2 FISCAL IMBALANCES AND REGULATORY REFORM IN SOUTHERN EUROPE the distance to frontier the most The 2008–09 global ﬁnancial crisis contributed to rapid increases in public debt lev- since 2005 els among high-income economies. The recession depressed tax revenues and forced Improvement governments to increase spending to ease the effects of the crisis. Governments used (percentage public sector stimulus to cushion the impact of the sharp contraction in output, and Rank Economy Region points) 1 Georgia ECA 31.6 many were also forced to intervene to strengthen the balance sheets of commercial 2 Rwanda SSA 26.5 banks and prop up industries struck particularly hard by the crisis. The ﬁscal deteriora- 3 Belarus ECA 23.5 tion in the context of weak global demand contributed to greater risk aversion among 4 Burkina Faso SSA 18.5 investors, complicating ﬁscal management in many economies, particularly those with 5 Macedonia, FYR ECA 17.4 already high debt levels or rapidly growing deﬁcits. 6 Egypt, Arab Rep. MENA 16.3 Greece, Italy, Portugal and Spain were among those most affected by the crisis and 7 Mali SSA 15.8 associated market pressures. Aware that the resumption of economic growth would be 8 Colombia LAC 15.3 key to returning to a sustainable ﬁscal position, authorities in these economies moved 9 Tajikistan ECA 15.2 to implement broad-ranging reforms. 10 Kyrgyz Republic ECA 14.8 11 Sierra Leone SSA 14.7 Business regulation reforms were an integral part of these plans, as reﬂected in the 12 China EAP 14.3 Doing Business data. While Greece is among the 10 economies with the biggest im- 13 Azerbaijan ECA 12.9 provements in the ease of doing business in the past year, the other 3 economies also 14 Croatia ECA 12.8 made important strides. Italy made it easier to get an electricity connection and to 15 Ghana SSA 12.7 register property. Portugal simpliﬁed the process for construction permitting, for im- 16 Burundi SSA 12.6 porting and exporting and for resolving insolvency. Spain made trading across borders 17 Poland OECD 12.3 simpler and amended its bankruptcy law. All 4 economies reformed or are also in the 18 Guinea-Bissau SSA 12.2 process of reforming their labor laws with the aim of making their labor market more 19 Armenia ECA 12.2 ﬂexible. 20 Ukraine ECA 12.0 Doing Business reforms are not new to these economies. Since 2004, Portugal has 21 Kazakhstan ECA 11.9 implemented 25, Spain and Greece 17, and Italy 14 institutional or regulatory reforms. 22 Senegal SSA 11.5 23 Cambodia EAP 11.1 The impact of these reforms has helped these 4 economies narrow the business regu- 24 Angola SSA 11.0 latory gap with the best performers in the European Union (see ﬁgure). 25 Mauritius SSA 10.9 26 Saudi Arabia MENA 10.7 In Southern Europe, an acceleration in the pace of regulatory reform 27 India SAS 10.6 28 Guatemala LAC 10.4 Distance to frontier (percentage points) 29 Madagascar SSA 10.3 100 30 Morocco MENA 10.1 Top 10 31 Yemen, Rep. MENA 10.1 80 in EU-27 32 Peru LAC 10.1 Gap between top 10 and Southern European economies Portugal 33 Mozambique SSA 10.0 Spain 34 Czech Republic OECD 9.8 70 Italy 35 Timor-Leste EAP 9.7 36 Côte d’Ivoire SSA 9.5 Greece 60 37 Togo SSA 9.5 38 Slovenia OECD 9.5 39 Mexico LAC 9.4 50 40 Niger SSA 9.4 0 41 Nigeria SSA 9.0 2005 2006 2007 2008 2009 2010 2011 2012 42 Portugal OECD 9.0 Note: The distance to frontier measure shows how far on average an economy is from the best performance 43 Solomon Islands EAP 8.9 achieved by any economy on each Doing Business indicator since 2005. The measure is normalized to range 44 Uruguay LAC 8.8 between 0 and 100, with 100 representing the best performance (the frontier). The top 10 in EU-27 are the 10 45 Dominican Republic LAC 8.8 economies closest to the frontier among current members of the European Union. 46 Taiwan, China EAP 8.8 Source: Doing Business database. 47 São Tomé and SSA 8.7 Príncipe 48 France OECD 8.6 Bosnia andadministrative procedures. Georgia has Rwanda, the number 2 improver globally 49 Herzegovina ECA 8.4followed this pattern, focusing initially on and top improver in Sub-Saharan Africa 50 Albania ECA 8.3 Note: Rankings are based on the absolute difference for eachreducing the complexity and cost of regu- since 2005, has reduced the gap with economy between its distance to frontier in 2005 and thatlatory processes and later on strengthen- the frontier by almost half. To highlight in 2012. The data refer to the 174 economies included in Doing Business 2006 (2005). Eleven economies were addeding legal institutions. But among a group key lessons emerging from Rwanda’s sus- in subsequent years. The distance to frontier measure shows how far on average an economy is from the best performanceof 5 top regional improvers, Georgia has tained efforts, this year’s report features achieved by any economy on each Doing Business indicatorimproved the most along both dimen- a case study of its reform process. But since 2005. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier).sions (ﬁgure 1.7). Rwanda is far from alone in the region: EAP = East Asia and the Paciﬁc; ECA = Eastern Europe and of the 50 economies advancing the most Central Asia; LAC = Latin America and the Caribbean; MENA = Middle East and North Africa; OECD = OECD high income; SAS = South Asia; SSA = Sub-Saharan Africa. Source: Doing Business database.

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10 DOING BUSINESS 2013 toward the frontier since 2005, 17 are in FIGURE 1.7 Different economies have followed a variety of regulatory reform paths Sub-Saharan Africa. Average distance to frontier in sets of Doing Business indicators (percentage points) Worldwide, economies at all income lev- Stronger 100 els are narrowing the gap with the frontier on average—but low-income economies 90 Singapore more so than high-income ones. This is an important achievement. Indeed, while 80 business regulatory practices in all lower- Strength of legal institutions income groups are converging toward 70 2012 those in high-income economies on Poland average, low-income economies have re- Colombia Georgia duced the gap the most, by 4 percentage 60 China points since 2005. Lower-middle-income economies have closed the gap with Rwanda 50 high-income economies by 3 percentage points, and upper-middle-income econo- 40 2005 mies by 2 percentage points. This conver- gence is far from complete, however. 30 While the Arab Republic of Egypt is the Weaker 20 top improver in the Middle East and North 20 30 40 50 60 70 80 90 100 Africa since 2005, its improvement was Complex and expensive Simple and inexpensive concentrated in the years before 2009. Complexity and cost of regulatory processes In the past 4 years there was no visible Note: Strength of legal institutions refers to the average distance to frontier in getting credit, protecting investors, enforcing improvement in the areas measured by contracts and resolving insolvency. Complexity and cost of regulatory processes refers to the average distance to frontier in Doing Business. Regionally, there was less starting a business, dealing with construction permits, registering property, paying taxes and trading across borders. Each dot refers to a different year, starting in 2005 and ending in 2012. The reform progress of Singapore, the economy with the focus on reforming business regulation in most business-friendly regulation for the seventh year in a row, is shown for purposes of comparison. For visual clarity the the past year than in any previous year series for Singapore starts in 2007. The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005. The measure is normalized to range covered by Doing Business, with only 11% between 0 and 100, with 100 representing the best performance (the frontier). of economies implementing at least 2 Source: Doing Business database. regulatory reforms (box 1.3). Colombia, the economy narrowing the in 2007, a new property law in 2007, a strengthened the process of resolving gap with the frontier the most in Latin new civil procedure law in 2008 and a insolvency. America and the Caribbean, is also fea- new corporate income tax law in 2008. tured in a case study this year. Between After establishing its ﬁrst credit bureau IN WHAT AREAS IS THE GAP 2006 and 2009 Colombia focused mostly in 2004, India focused mostly on sim- NARROWING THE MOST? on improving the efficiency of regulatory plifying and reducing the cost of regula- Since 2005 there has been a convergence processes, with an emphasis on business tory processes in such areas as starting a in business regulatory practices in two- registration and tax administration. But in business, paying taxes and trading across thirds of the areas measured by Doing 2010 it began reforming legal institutions, borders. Business: starting a business, paying such as by strengthening the protection taxes, dealing with construction permits, Five OECD high-income economies make of minority shareholders and by improv- the list of top 50 improvers: Poland, the registering property, getting credit and ing the insolvency regime. Czech Republic, Slovenia, Portugal and enforcing contracts. This means that laws, Two of the “BRICs” rank among the top France. Poland in the past year alone im- regulations and procedures in these areas 50 improvers—China and India, each also plemented 4 institutional and regulatory are more similar across economies today the top improver in its region since 2005. reforms, among the 20 recorded for it by than they were 8 years ago. Overall, more Both implemented regulatory reforms Doing Business since 2005. It improved convergence has occurred in the areas particularly in the early years covered the process for transferring property, measured by Doing Business that relate by Doing Business. China established a made paying taxes more convenient by to the complexity and cost of regulatory new company law in 2005, a new credit promoting the use of electronic facilities, processes than in those that relate to the registry in 2006, its ﬁrst bankruptcy law reduced the time to enforce contracts and strength of legal institutions.1

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EXECUTIVE SUMMARY 11The greatest convergence in regulatory remain constant over time when doing FIGURE 1.8 Strong convergence acrosspractice has occurred in business start- analysis across economies—something economies since 2005up. Among the 174 economies covered not possible in the earlier cross-country Averages by quartileby Doing Business since 2005, the time analyses. Based on a 5-year panel of Time to start a business (days)to start a business in that year averaged economies, one such study ﬁnds that in 120112 days in the worst quartile of the low-income economies that implemented 100economies as ranked by performance reforms making it easier to do business,on this indicator, while it averaged 29 80 the growth rate increased by 0.4 percent- Worstdays for the rest (ﬁgure 1.8). Since then, age point in the following year.2 Emerging 60 quartilethanks to 368 reforms in 149 economies, evidence from analysis based on 8 years 40the average time for the worst quartile of Doing Business data and building on the Best 3 quartileshas fallen to 63 days, getting closer to the earlier studies shows that improvements 20average of 18 for the rest. Similar but less in business entry and other aspects of 0strong patterns are observed for indicators 2005 2006 2007 2008 2009 2010 2011 2012 business regulation matter for aggregateof time, procedures and cost for paying growth as well. Credibly pinning down the Time to deal with construction permits (days)taxes, dealing with construction permits 450 magnitude of this effect is more difficult,and registering property. 400 however.3 350But in 3 areas the trend runs weakly in Worst Research on the effect of regulatory 300 quartilethe other direction. In protecting inves- 250 reforms is advancing especially rapidlytors, trading across borders and resolving 200 Best 3 quartiles around the question of business start-up.insolvency the realities in different econo- 150 A growing body of research has shownmies have slowly drifted apart rather than 100 that simpler entry regulations encourage 50converged. This does not mean that in the creation of more new ﬁrms and new 0these 3 areas the average regulatory en- 2005 2006 2007 2008 2009 2010 2011 2012 jobs in the formal sector. Economies atvironment is worse today than in 2005; varying income levels and in different Time to pay taxes (hours per year)it is actually better (see ﬁgure 1.6). But itdoes mean that economies that were in regions saw noticeable increases in the 800the best 3 quartiles of the distribution in number of new ﬁrm registrations after 700these 3 areas in 2005 have strengthened implementing such reforms (ﬁgure 1.9). 600 Worstpractices and institutions somewhat Within-country studies have conﬁrmed 500 quartilefaster than those in the worst quartile. the positive association between im- 400 provements in business registration and 300 Best 3 quartilesWHAT IS THE IMPACT ON registration of new ﬁrms in such countries 200ECONOMIC OUTCOMES? as Colombia, India, Mexico and Portugal. 100 These studies have found increases of 0Beyond what Doing Business measures, 2005 2006 2007 2008 2009 2010 2011 2012 5–17% in the number of newly registeredhave the business regulation reforms un- businesses after reforms of the business Time to register property (days)dertaken by governments since 2005 had registration process (for more discussion, 250an impact? In presenting analysis of thisquestion, earlier editions of Doing Business see the chapter “About Doing Business”). 200focused on cross-country analyses linking Better business regulation as measured 150business regulation to economic variables Worst by Doing Business is also associated quartilesuch as corruption or rates of informality with greater new business registration. 100in the economy. Ongoing research by Doing Business us- 50 Best 3 quartilesWith more years of data now available, ing 8 years of data shows that reducingprevious research on the impact of the distance to frontier by 10 percentage 0 2005 2006 2007 2008 2009 2010 2011 2012reforms in the areas measured by Doing points is associated with an increase of 1Business can be extended over time and newly registered business for every 1,000 Note: Economies are ranked in quartiles by performance working-age people, a meaningful result in 2005 on the indicator shown. The data refer to the 174linked to more economic outcomes. economies included in Doing Business 2006 (2005). ElevenUsing several years of data for the same given the world average of 3.2 newly economies were added in subsequent years.economy makes it possible to take into registered businesses for every 1,000 Source: Doing Business database.account country characteristics that working-age people per year.4

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12 DOING BUSINESS 2013 BOX 1.3 BUSINESS REGULATION IN THE MIDDLE EAST AND NORTH AFRICA—THE CHALLENGES AHEAD Earlier editions of the Doing Business rank corruption, anticompetitive practices complexity and cost of regulatory process- report highlighted substantial efforts by and regulatory policy uncertainty high on es, entrepreneurs across the region still con- governments in the Middle East and North their list of concerns. At the same time 60% tend with weak investor and property rights Africa to improve business regulation for of public officials interviewed across the protections (see ﬁgure). With an average local entrepreneurs. But the reform mo- region perceive the private sector as rent ease of doing business ranking of 98, the re- mentum has slowed since the beginning of seeking and corrupt. And banks cite lack of gion still has much room for making the life the Arab Spring in January 2011, as some corporate transparency as among the main of local businesses easier through clearer countries have entered a complex process obstacles to extending more ﬁnance to and more transparent rules applied more of transition to more democratic forms of small and medium-size enterprises.2 consistently. Such rules would facilitate governance. The post–Arab Spring govern- Some governments in the region have rather than impede private sector activity ments have had a broad range of economic, tried to aggressively reform the business in economies where the state has tradition- social and political issues to address, and environment in the past, but have seen the ally had an outsized presence in the national this in turn has resulted in a slower overall impact of their efforts lessened by a lack of economy and in a region where the need to reform process, as new governments have sustained commitment to in-depth changes encourage entrepreneurship is thus perhaps struggled to adjust to important shifts in the and the related risk of upsetting the estab- more intense than in any other. political and economic landscape. lished order. A common view is that only All these challenges notwithstanding, The region faces structural challenges connected entrepreneurs are successful, the recent political changes in the region— that can impede private sector activity. A suggesting a dual set of rules with prefer- fast, hectic, unpredictable, far-reaching in history of government intervention has ential treatment for those close to the ruling their effects—provide a unique opportunity created more opportunities for rent seek- elites. This suggests a need for governments for governments to substantively address ing than for entrepreneurship. Firm surveys to invest in governance structures and in- many of the impediments to private sector show that manufacturing ﬁrms as well as crease transparency in parallel with efforts development that have plagued the region their managers are older on average than to improve the business regulatory environ- in recent decades. Moving to a system of those in other regions, indicating weaker ment. The case study on transparency in more transparent and sensible rules—rules entry and exit mechanisms. Firm entry den- this year’s report points to one area where that are better able to respond to the needs sity in the Middle East and North Africa is they could start: the Middle East and North of the business community and that provide among the lowest in the world.1 Africa is one of the regions with the most incentives to narrow the gap between the Moreover, the region suffers from a crisis constrained access to basic regulatory infor- law as written and the law as practiced— of governance and trust: businesses do not mation such as fee schedules. will go a long way toward creating the con- trust officials, and officials do not trust busi- Although economies in the region ditions for more equitable economic growth nesses. Business managers in the region have made some strides in reducing the and a faster pace of job creation. Entrepreneurs across the Middle East and North Africa face relatively weak investor and property rights protections Average ranking on sets of Doing Business indicators by economy and global income group Stronger Stronger legal institutions but Stronger legal institutions and more complex and expensive High simpler and less expensive regulatory processes income regulatory processes Saudi Upper middle Arabia Strength of legal institutions Size of bubble reflects average population size income Size of bubble reflects population size Lower middle Tunisia Qatar income Algeria Iran, Islamic Rep. Kuwait Oman Bahrain Morocco Egypt, United Arab Low Arab Rep. Lebanon Emirates income West Bank and Gaza Yemen, Rep. Jordan Weaker legal institutions and Djibouti Syrian Arab Republic Weaker legal institutions but more complex and expensive Iraq simpler and less expensive Weaker regulatory processes regulatory processes Complex and Complexity and cost Simple and expensive of regulatory processes inexpensive Note: Strength of legal institutions refers to the average ranking on getting credit, protecting investors, enforcing contracts and resolving insolvency. Complexity and cost of regulatory processes refers to the average ranking on starting a business, dealing with construction permits, getting electricity, registering property, paying taxes and trading across borders. The global income groups exclude economies in the Middle East and North Africa. Source: Doing Business database. 1. World Bank, From Privilege to Competition: Unlocking Private-Led Growth in the Middle East and North Africa (Washington, DC: World Bank, 2009). Firm entry density is deﬁned as the number of newly registered limited liability companies per 1,000 working-age people (ages 15–64). 2. Roberto Rocha, Subika Farazi, Rania Khouri and Douglas Pearce, “The Status of Bank Lending to SMEs in the Middle East and North Africa Region: The Results of a Joint Survey of the Union of Arab Banks and the World Bank” (World Bank, Washington, DC; and Union of Arab Banks, Beirut, 2010).

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14 DOING BUSINESS 2013 FIGURE 1.9 More new ﬁrms are registered after reforms making it simpler to start a business NOTES Number of newly registered firms (thousands) 1. To measure convergence, Doing Business 60 calculated the change in the variance of distance to frontier across 174 economies since 2005 for each topic. 50 Chile The results suggest that the largest con- Sweden vergence has been in starting a business, 40 with the variance decreasing by 49% since 2005. The topics with the next 30 Morocco largest convergence are paying taxes (with a change in variance of −24%), Kenya dealing with construction permits 20 (−23%), registering property (−19%), Bangladesh getting credit (−12%) and enforcing 10 contracts (−4%). Several other topics Rwanda show a small divergence: trading across 0 -3 -2 -1 0 1 2 3 borders (7%), protecting investors (2%) and resolving insolvency (1%). The Years before reform Years after reform overall change in the variance is −16%, Note: All 6 economies implemented a reform making it easier to start a business as measured by Doing Business. The reform suggesting an overall convergence in all year varies by economy and is represented by the vertical line in the ﬁgure. For Bangladesh and Rwanda it is 2009; for Chile, Doing Business topics. 2011; for Kenya, 2007; for Morocco, 2006; and for Sweden, 2010. 2. Eifert 2009. Source: World Bank Group Entrepreneurship Snapshots, 2012 edition. 3. The analysis, by Divanbeigi and Ramalho (2012), ﬁnds that narrowing the distance Yet another ﬁnding relates to the relation- (APEC), focusing on peer-to-peer learn- to frontier in the indicator sets measur- ing the complexity and cost of regulatory ship between foreign direct investment ing. And for the ﬁrst time the report pres- processes by 10 percentage points is and business regulation. A case study in ents thematic case studies, on foreign associated with an increase of close to 1 this year’s report shows that although the percentage point in the GDP growth rate. direct investment and on transparency in Doing Business indicators measure regula- Since the distance to frontier improves business regulation. by 1 percentage point a year on average, tions applying to domestic ﬁrms, econo- these simulations are based on expected mies that do well in this area also provide This year’s report also reintroduces the results for a 10-year period. Results are an attractive regulatory environment for topic chapters. But it presents them in a based on Arellano-Bond dynamic panel foreign ﬁrms. Again using multiple years estimation to control for economic cycle different format, as shorter “topic notes” and time-invariant country-speciﬁc of data, the case study shows that econo- that focus on the changes in the data factors. Following Eifert (2009) and mies that are closer to the frontier in Djankov, McLeish and Ramalho (2006), from the previous year and over all years regulatory practice attract larger inﬂows the analysis controls for government covered by Doing Business. The topic consumption, institutional quality and of foreign direct investment. notes also discuss the most prominent corruption perception. It also controls reforms from the past year. Full informa- for total trade openness and rents from WHAT’S NEW IN natural resources. THIS YEAR’S REPORT? tion for each topic, including examples of 4. This research follows Klapper and This year’s report, like last year’s, pres- good practices and relevant research, is Love (2011a). The analysis controls for available on the Doing Business website.5 government consumption, institutional ents country case studies. These feature quality and corruption perception. It also Colombia, Latvia and Rwanda. In addition, The website also presents the full list of controls for total trade openness and the report presents a regional case study good practices by topic summarized in rents from natural resources. on Asia-Paciﬁc Economic Cooperation table 1.4. 5. http://www.doingbusiness.org.

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15About Doing Business:measuring for impactThe private sector provides an estimated economy can be compared with those for90% of jobs in developing economies.1 184 other economies and over time.Where government policies support adynamic business environment—with Over the years the choice of indicators forﬁrms making investments, creating jobs Doing Business has been guided by a richand increasing productivity—all people pool of data collected through the Worldhave greater opportunities. A growing Bank Enterprise Surveys. These databody of evidence suggests that policy highlight the main obstacles to businessmakers seeking to strengthen the private activity as reported by entrepreneurs insector need to pay attention not only to well over 100 economies. Among themacroeconomic factors but also to the factors that the surveys have identiﬁed asquality of laws, regulations and insti- important to businesses have been taxestutional arrangements that shape daily (tax administration as well as tax rates)economic life.2 and electricity—inspiring the design of the paying taxes and getting electricityThis is the 10th Doing Business report. indicators. In addition, the design of theWhen the ﬁrst report was produced, in Doing Business indicators has drawn2003, there were few globally available on theoretical insights gleaned fromand regularly updated indicators for extensive research literature.3 The Doingmonitoring such microeconomic issues Business methodology makes it possibleas business regulations affecting local to update the indicators in a relativelyﬁrms. Earlier efforts from the 1980s drew inexpensive and replicable way.on perceptions data, but these expertor business surveys focused on broad The Doing Business methodology is alsoaspects of the business environment responsive to the needs of policy makers.and often captured the experiences of Rules and regulations are under the directbusinesses. These surveys also lacked control of policy makers—and policythe speciﬁcity and cross-country compa- makers intending to change the experi-rability that Doing Business provides—by ence and behavior of businesses willfocusing on well-deﬁned transactions, often start by changing rules and regula-laws and institutions rather than generic, tions that affect them. Doing Businessperceptions-based questions on the busi- goes beyond identifying that a problemness environment. exists and points to speciﬁc regulations or regulatory procedures that may lendDoing Business seeks to measure business themselves to regulatory reform. Andregulations for domestic ﬁrms through an its quantitative measures of businessobjective lens. The project looks primar- regulation enable research on how spe-ily at small and medium-size companies ciﬁc regulations affect ﬁrm behavior andin the largest business city. Based on economic outcomes.standardized case studies, it presentsquantitative indicators on the regulations The ﬁrst Doing Business report covered 5that apply to ﬁrms at different stages topics and 133 economies. This year’s re-of their life cycle. The results for each port covers 11 topics and 185 economies.

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16 DOING BUSINESS 2013 Ten topics are included in the aggregate beneﬁts and bear the costs of develop- FIGURE 2.1 What are SMART business ranking on the ease of doing business, ment strategies and policies. regulations as deﬁned by Doing Business? and 9 in the distance to frontier measure.4 The project has beneﬁted from feedback Consistent with the view that rules mat- ter, some Doing Business indicators give STREAMLINED—regulations from governments, academics, practi- that accomplish the desired a higher score for more regulation and outcome in the most efficient way tioners and reviewers.5 The initial goal remains: to provide an objective basis for better-functioning institutions (such as S courts or credit bureaus). In the area of understanding and improving the regula- MEANINGFUL—regulations protecting investors, for example, higher that have a measurable positive tory environment for business. scores are given for stricter disclosure re- impact in facilitating WHAT DOING BUSINESS COVERS quirements for related-party transactions. M interactions in the marketplace Higher scores are also given for a simpli- Doing Business captures several important ﬁed way of applying regulation that keeps ADAPTABLE—regulations dimensions of the regulatory environ- compliance costs for ﬁrms low—such as that adapt to changes in the environment ment as they apply to local ﬁrms. It provides quantitative measures of regula- by allowing ﬁrms to comply with business A start-up formalities in a one-stop shop tions for starting a business, dealing with or through a single online portal. Finally, RELEVANT—regulations that are construction permits, getting electricity, Doing Business scores reward economies proportionate to the problem they are designed to solve registering property, getting credit, pro- tecting investors, paying taxes, trading that apply a risk-based approach to regulation as a way to address social R across borders, enforcing contracts and and environmental concerns—such as TRANSPARENT—regulations resolving insolvency. Doing Business also by imposing a greater regulatory burden that are clear and accessible to on activities that pose a high risk to the anyone who needs to use them looks at regulations on employing work- ers. Pending further progress on research population and a lesser one on lower-risk T in this area, this year’s report does not activities. present rankings of economies on the Thus the economies that rank highest on employing workers indicators or include the ease of doing business are not those Indeed, about three-quarters of the data the topic in the aggregate ranking on the where there is no regulation—but those used in Doing Business are of this factual ease of doing business. It does present the where governments have managed to type, reducing the need to have a larger data on the employing workers indicators. create rules that facilitate interactions sample size of experts in order to improve Additional data on labor regulations col- in the marketplace without needlessly accuracy. The local expert respondents lected in 185 economies are available on hindering the development of the private play a vital role in corroborating the Doing the Doing Business website.6 Business team’s understanding and inter- sector. In essence, Doing Business is about smart business regulations, not necessar- pretation of rules and laws. The foundation of Doing Business is the notion that economic activity, particularly ily fewer regulations (ﬁgure 2.1). Data of the second type serve as inputs private sector development, beneﬁts from into indicators on the complexity and cost In constructing the indicators the Doing clear and coherent rules: Rules that set out of regulatory processes. These indicators Business project uses 2 types of data. and clarify property rights and facilitate The ﬁrst come from readings of laws and measure the efficiency in achieving a the resolution of disputes. And rules that regulations in each economy. The Doing regulatory goal, such as the number of enhance the predictability of economic Business team, in collaboration with local procedures to obtain a building permit interactions and provide contractual part- expert respondents, examines the com- or the time taken to grant legal identity ners with essential protections against pany law to ﬁnd the disclosure require- to a business. In this group of indicators arbitrariness and abuse. Where such ments for related-party transactions. It cost estimates are recorded from official rules are reasonably efficient in design, reads the civil law to ﬁnd the number of fee schedules where applicable. Time are transparent and accessible to those procedures necessary to resolve a com- estimates often involve an element of for whom they are intended and can be mercial sale dispute before local courts. judgment by respondents who routinely implemented at a reasonable cost, they It reviews the labor code to ﬁnd data on administer the relevant regulations or are much more effective in shaping the a range of issues concerning employer- undertake the relevant transactions.7 incentives of economic agents in ways employee relations. And it plumbs other These experts have several rounds of that promote growth and development. legal instruments for other key pieces interaction with the Doing Business team, The quality of the rules also has a crucial of data used in the indicators, several involving conference calls, written cor- bearing on how societies distribute the of which have a large legal dimension. respondence and visits by the team until

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ABOUT DOING BUSINESS: MEASURING FOR IMPACT 17there is convergence on the ﬁnal answer. TABLE 2.1 Doing Business—benchmarking 11 areas of business regulationTo construct the time indicators, a regula- Complexity and cost of regulatory processestory process such as starting a business Starting a business Procedures, time, cost and paid-in minimum capital requirementis broken down into clearly deﬁned steps Dealing with construction permits Procedures, time and costand procedures (for more details, see Getting electricity Procedures, time and costthe discussion on methodology in this Registering property Procedures, time and costchapter). Here Doing Business builds on Paying taxes Payments, time and total tax rateHernando de Soto’s pioneering work in Trading across borders Documents, time and costapplying the time-and-motion approach Strength of legal institutionsin the 1980s to show the obstacles to set- Getting credit Movable collateral laws and credit information systemsting up a garment factory on the outskirts Protecting investors Disclosure and liability in related-party transactionsof Lima.8 Enforcing contracts Procedures, time and cost to resolve a commercial dispute Resolving insolvency Time, cost, outcome and recovery rateWHAT DOING BUSINESS Employing workersa Flexibility in the regulation of employmentDOES NOT COVER a. The employing workers indicators are not included in this year’s ranking on the ease of doing business nor in theThe Doing Business data have key limita- calculation of any data on the strength of legal institutions included in ﬁgures in the report.tions that should be kept in mind by thosewho use them. through 11 speciﬁc sets of indicators One such assumption is the location of a (table 2.1). Similar to the indicators notional business in the largest businessLimited in scope on getting electricity, those on start- city of the economy. The reality is thatThe Doing Business indicators are limited ing a business or protecting investors business regulations and their enforce-in scope. In particular: do not cover all aspects of commercial ment very often differ within a country,• Doing Business does not measure the legislation. And those on employing particularly in federal states and large full range of factors, policies and in- workers do not cover all areas of labor economies. But gathering data for every stitutions that affect the quality of the regulation; for example, they do not relevant jurisdiction in each of the 185 business environment in an economy measure regulations addressing health economies covered by Doing Business or its national competitiveness. It does and safety issues at work or the right of would be far too costly. not, for example, capture aspects of collective bargaining. security, the prevalence of bribery • Doing Business does not attempt to Doing Business recognizes the limitations and corruption, market size, macro- measure all costs and beneﬁts of a of the standardized case scenarios and economic stability (including whether particular law or regulation to society assumptions. But while such assump- the government manages its public ﬁ- as a whole. The paying taxes indicators, tions come at the expense of generality, nances in a sustainable way), the state for example, measure the total tax rate, they also help ensure the comparability of the ﬁnancial system or the level of which in isolation is a cost to the busi- of data. For this reason it is common to training and skills of the labor force. ness. The indicators do not measure, see limiting assumptions of this kind in• Even within the relatively small set of nor are they intended to measure, the economic indicators. Inﬂation statistics, indicators included in Doing Business, beneﬁts of the social and economic for example, are often based on prices of the focus is deliberately narrow. The programs funded through tax rev- a set of consumer goods in a few urban getting electricity indicators, for ex- enues. Measuring business laws and areas, since collecting nationally repre- ample, capture the procedures, time regulations provides one input into sentative price data at high frequencies and cost involved for a business to ob- the debate on the regulatory burden may be prohibitively costly in many coun- tain a permanent electricity connection associated with achieving regulatory tries. To capture regional variation in the to supply a standardized warehouse. objectives. Those objectives can differ business environment within economies, Through these indicators Doing across economies. Doing Business has complemented its Business thus provides a narrow per- global indicators with subnational studies spective on the range of infrastructure Limited to standardized in some economies where resources and challenges that ﬁrms face, particularly case scenarios interest have come together (box 2.1). in the developing world. It does not ad- A key consideration for the Doing Business dress the extent to which inadequate indicators is that they should ensure Some Doing Business topics include com- roads, rail, ports and communications comparability of the data across a global plex and highly differentiated areas. Here may add to ﬁrms’ costs and undermine set of economies. The indicators are the standardized cases and assumptions competitiveness. Doing Business cov- therefore developed around standardized are carefully considered and deﬁned. For ers 11 areas of a company’s life cycle, case scenarios with speciﬁc assumptions. example, the standardized case scenario

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18 DOING BUSINESS 2013 usually involves a limited liability company investors are encouraged to venture into what needs to be done or how to comply or its legal equivalent. The considerations business when potential losses are lim- and may lose considerable time in trying in deﬁning this assumption are twofold. ited to their capital participation. to ﬁnd out. Or they may deliberately avoid First, private limited liability companies compliance altogether—by not register- are, empirically, the most prevalent busi- Limited to the formal sector ing for social security, for example. Where regulation is particularly onerous, levels of ness form in many economies around The Doing Business indicators assume informality tend to be higher (ﬁgure 2.2). the world. Second, this choice reﬂects that entrepreneurs have knowledge of the focus of Doing Business on expand- and comply with applicable regulations. Informality comes at a cost. Compared ing opportunities for entrepreneurship: In practice, entrepreneurs may not know with their formal sector counterparts, ﬁrms in the informal sector typically grow more slowly, have poorer access to credit BOX 2.1 COMPARING REGULATIONS AT THE LOCAL LEVEL: SUBNATIONAL DOING BUSINESS REPORTS and employ fewer workers—and these Subnational Doing Business reports expand the indicators beyond the largest busi- workers remain outside the protections of ness city in an economy. They capture local differences in regulations or in the imple- labor law.9 All this may be even more so mentation of national regulations across cities within an economy (as in Colombia) for female-owned businesses, according or region (as in South East Europe). Projects are undertaken at the request of central to country-speciﬁc research.10 Firms in governments, which often contribute ﬁnancing, as in Mexico. In some cases local gov- ernments also provide funding, as in the Russian Federation. the informal sector are also less likely to Subnational indicators provide governments with standard measures, based on laws pay taxes. and regulations, that allow objective comparisons both domestically and internation- ally. As a diagnostic tool, they identify bottlenecks as well as highlight good practices Doing Business measures one set of factors that are easily replicable in other cities sharing a similar legal framework. that help explain the occurrence of infor- Governments take ownership of a subnational project by participating in all steps of mality and give policy makers insights its design and implementation—choosing the cities to be benchmarked, the indicators into potential areas of reform. Gaining that can capture local differences and the frequency of benchmarking. All levels of a fuller understanding of the broader government are involved—national, regional and municipal. business environment, and a broader Subnational projects create a space for discussing regulatory reform and provide opportunities for governments and agencies to learn from one another, through the perspective on policy challenges, requires report and through peer-to-peer learning workshops. Even after the report is launched, combining insights from Doing Business knowledge sharing continues. In Mexico 28 of 32 states hold regular exchanges. with data from other sources, such as the Repeated benchmarking creates healthy competition between cities to improve World Bank Enterprise Surveys.11 their regulatory environment. The dissemination of the results reinforces this pro- cess and gives cities an opportunity to tell their stories. Fifteen economies have requested 2 or more rounds of benchmarking since 2005 (including Colombia, WHY THIS FOCUS? Indonesia and Nigeria), and many have expanded the geographic coverage to Why does Doing Business focus on the more cities (including Russia). In Mexico each successive round has captured an regulatory environment for small and me- increase in the number of states improving their regulatory environment in each of dium-size enterprises? These enterprises the 4 indicator sets included—reaching 100% of states in 2011. are key drivers of competition, growth and Since 2005 subnational reports have covered 335 cities in 54 economies, including Brazil, China, the Arab Republic of Egypt, India, Kenya, Morocco, Pakistan and the Philippines.1 job creation, particularly in developing This year studies were updated in Indonesia, Kenya, Mexico, Russia and the United economies. But in these economies up to Arab Emirates. Studies are ongoing in Hargeisa (Somaliland) as well as in 23 cities and 65% of economic activity takes place in 4 ports in Colombia, 15 cities and 3 ports in Egypt and 13 cities and 7 ports in Italy. In the informal sector, often because of ex- addition, 3 regional reports were published: cessive bureaucracy and regulation—and • Doing Business in OHADA, comparing business regulations in the 16 member states in the informal sector ﬁrms lack access of the Organization for the Harmonization of Business Law in Africa (Benin, Burkina Faso, Cameroon, the Central African Republic, Chad, the Comoros, the Republic of to the opportunities and protections that Congo, Côte d’Ivoire, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Mali, Niger, the law provides. Even ﬁrms operating in Senegal and Togo). the formal sector might not have equal • Doing Business in the East African Community, covering 5 economies (Burundi, Kenya, access to these opportunities and protec- Rwanda, Tanzania and Uganda). tions. Where regulation is burdensome • Doing Business in the Arab World, covering 20 economies (Algeria, Bahrain, the and competition limited, success tends to Comoros, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Mauritania, Morocco, depend on whom one knows. But where Oman, Qatar, Saudi Arabia, Sudan, the Syrian Arab Republic, Tunisia, the United Arab Emirates, West Bank and Gaza, and the Republic of Yemen). regulation is transparent, efficient and implemented in a simple way, it becomes 1. Subnational reports are available on the Doing Business website at http://www.doingbusiness.org/ subnational. easier for aspiring entrepreneurs to com- pete, innovate and grow.

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ABOUT DOING BUSINESS: MEASURING FOR IMPACT 19FIGURE 2.2 Higher levels of informality are associated with lower Doing Business rankings other major economic benchmarks. The Informal sector indicator set closest to Doing Business in as % of GDP, 2007 what it measures is the set of indicators 70 on product market regulation compiled by the Organisation for Economic Co- 60 operation and Development (OECD). 50 These are designed to help assess the extent to which the regulatory environ- 40 ment promotes or inhibits competition. 30 They include measures of the extent of price controls, the licensing and permit 20 system, the degree of simpliﬁcation of 10 rules and procedures, the administrative burdens and legal and regulatory bar- 0 riers, the prevalence of discriminatory 0 20 40 60 80 100 120 140 160 180 procedures and the degree of government DB2013 ranking on the ease of doing business control over business enterprises.13 TheseNote: The correlation between the 2 variables is 0.57. Relationships are signiﬁcant at the 5% level after controlling for income indicators—for the 39 countries that areper capita. The data sample includes 143 economies.Source: Doing Business database; Schneider, Buehn and Montenegro 2010. covered, several of them large emerging markets—are correlated with the Doing Business rankings (the correlation here isDo the focus areas of Doing Business mat- cover aspects that are more easily mea- 0.53) (ﬁgure 2.3).ter for development and poverty reduc- sured than the entire regulatory environ-tion? The World Bank study Voices of the ment, and they provide important infor- There is a high correlation (0.83) be-Poor asked 60,000 poor people around mation about where change is needed. tween the Doing Business rankings and thethe world how they thought they might What type of change or regulatory reform rankings on the World Economic Forum’sescape poverty.12 The answers were un- is right, however, can vary substantially Global Competitiveness Index, a muchequivocal: women and men alike pin their across economies. broader measure capturing such factorshopes, above all, on income from their as macroeconomic stability, aspects ofown business or wages earned in employ- To test whether Doing Business serves human capital, the soundness of publicment. Enabling growth—and ensuring as a proxy for the broader business institutions and the sophistication ofthat all people, regardless of income level, environment and for competitiveness, the business community (ﬁgure 2.4).14can participate in its beneﬁts—requires one approach is to look at correlations Self-reported experiences with businessan environment where new entrants with between the Doing Business rankings and regulations, such as those captured by thedrive and good ideas can get started inbusiness and where good ﬁrms can invest FIGURE 2.3 A signiﬁcant correlation between Doing Business rankings and OECD rankings onand grow, thereby generating more jobs. product market regulationIn this sense Doing Business values goodrules as a key to social inclusion. 2008 ranking on OECD product market regulation indicatorsIn effect, Doing Business functions as a 40barometer of the regulatory environmentfor domestic businesses. To use a medi- 30cal analogy, Doing Business is similar to acholesterol test. A cholesterol test does 20not tell us everything about our health.But our cholesterol level is easier to mea-sure than our overall health, and the test 10provides us with important information,warning us when we need to adjust our 0 0 20 40 60 80 100 120 140 160 180behavior. Similarly, Doing Business doesnot tell us everything we need to know DB2013 ranking on the ease of doing businessabout the regulatory environment for Note: Relationships are signiﬁcant at the 5% level after controlling for income per capita.domestic businesses. But its indicators Source: Doing Business database; OECD data.

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20 DOING BUSINESS 2013 FIGURE 2.4 A strong correlation between Doing Business rankings and World Economic Forum At any point in time the distance to fron- rankings on global competitiveness tier measure shows how far an economy is 2012/13 ranking on Global from the highest performance. And com- Competitiveness Index paring an economy’s score at 2 points in 140 time allows users to assess the absolute change over time in the economy’s regu- 120 latory environment as measured by Doing 100 Business, rather than simply the change 80 in the economy’s performance relative to 60 others. In this way the distance to frontier measure complements the yearly ease of 40 doing business ranking, which compares 20 economies with one another at a point in 0 time. 0 20 40 60 80 100 120 140 160 180 DB2013 ranking on the ease of doing business Each topic covered by Doing Business relates to a different aspect of the busi- Note: Relationships are signiﬁcant at the 5% level after controlling for income per capita. Source: Doing Business database; WEF 2012. ness regulatory environment. The rank- ings of each economy vary, sometimes signiﬁcantly, across topics. A quick way Global Competitiveness Index, often vary economies that have had rapid growth or to assess the variability of an economy’s much more within economies (across attracted a great deal of investment may regulatory performance across the differ- respondents in the same economy) than rank lower than others that appear to be ent areas of business regulation is to look across economies.15 A high correlation less dynamic. at the topic rankings (see the country such as this one can therefore coexist with tables). Guatemala, for example, stands signiﬁcant differences within economies. As economies develop, they may add to at 93 in the overall ease of doing business or improve on regulations that protect ranking. Its ranking is 12 on the ease of DOING BUSINESS AS A investor and property rights. Many also getting credit, 20 on the ease of register- BENCHMARKING EXERCISE tend to streamline existing regulations ing property and 34 on the ease of getting By capturing key dimensions of regula- and prune outdated ones. One ﬁnding electricity. At the same time, it has a rank- tory regimes, Doing Business provides a of Doing Business is that dynamic and ing of 124 on the ease of paying taxes, 158 rich opportunity for benchmarking. Such growing economies continually reform on the strength of investor protections a benchmarking exercise is necessarily in- and update their business regulations and and 172 on the ease of starting a business complete, just as the Doing Business data the implementation of those regulations, (see ﬁgure 1.2 in the executive summary). are limited in scope. It is useful when it while many poor economies still work aids judgment, but not when it supplants with regulatory systems dating to the late WHAT 10 YEARS judgment. 1800s. OF DATA SHOW Since 2006 Doing Business has sought to A growing body of empirical research For reform-minded governments, how provide 2 perspectives on the data it col- shows that particular areas of business much the regulatory environment for lo- lects: it presents “absolute” indicators for regulation, and particular regulatory re- cal entrepreneurs improves in an absolute each economy for each of the 11 regula- forms in those areas, are associated with sense matters far more than their econo- tory topics it addresses, and it provides vital social and economic outcomes— my’s ranking relative to other economies. rankings of economies for 10 topics, by including ﬁrm creation, employment, To aid in assessing the absolute level of formality, international trade, access topic and also in the aggregate. Judgment regulatory performance and how it im- to ﬁnancial services and the survival of is required in interpreting these measures proves over time, this year’s report again struggling but viable ﬁrms.16 This research for any economy and in determining a presents the distance to frontier measure. has been made possible by a decade of sensible and politically feasible path for This measure shows the distance of Doing Business data combined with other regulatory reform. each economy to the “frontier,” which data sets. Some 1,245 research articles Reviewing the Doing Business rankings in represents the highest performance published in peer-reviewed academic isolation may reveal unexpected results. observed on each of the indicators across journals, and about 4,071 working papers Some economies may rank unexpect- all economies included in Doing Business available through Google Scholar, refer to edly high on some topics. And some since 2003. the Doing Business data.17

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ABOUT DOING BUSINESS: MEASURING FOR IMPACT 21Determining the empirical impact of utilities and communications.22 Empirical • In India a study found that the pro-regulatory reforms is not easy. One pos- evidence also suggests that more effi- gressive elimination of the “licensesible approach is cross-country correla- cient business entry regulations improve raj”—the system regulating entry andtion analysis. But with this method it is ﬁrm productivity and macroeconomic production in industry—led to a 6%difficult to isolate the effect of a particular performance.23 increase in new ﬁrm registrations.30regulatory reform because of all the other Another study found that simpler entryfactors that may vary across economies Lower costs for business registration improve regulation and labor market ﬂexibilityand that may not have been taken into formal employment opportunities. Because were complementary: in Indian statesaccount in the analysis. How then do new ﬁrms are often set up by high-skilled with more ﬂexible employment regula-researchers determine whether social or workers, lowering entry costs often leads tions informal ﬁrms decreased by 25%economic outcomes would have been to higher take-up rates for education, more, and real output grew by 18%different without a speciﬁc regulatory re- more jobs for high-skilled workers and more, than in states with less ﬂexibleform? A growing number of studies have higher average productivity.24 And by regulations.31 A third study found thatbeen able to investigate such questions increasing formal registration, it can also the licensing reform resulted in an ag-by analyzing regulatory changes within a boost legal certainty—because the newly gregate productivity increase of 22%country over time or by using panel esti- formal ﬁrms are now covered by the legal among the ﬁrms affected.32mations. Others have focused on regula- system, beneﬁting themselves as well as • In Portugal the introduction of a one-tory reforms relevant only for particular their customers and suppliers.25 stop shop for businesses led to a 17%ﬁrms or industries within a country. The increase in new ﬁrm registrations. Thebroader literature, using a range of differ- Country-speciﬁc studies conﬁrm that reform favored mostly small-scaleent empirical strategies, has produced a simplifying entry regulations can promote entrepreneurs with low levels of educa-number of interesting ﬁndings, including the establishment of new formal sector tion operating in low-tech sectors suchthose described below. ﬁrms: as agriculture, construction and retail.33 • In Colombia the introduction of one-Smarter business regulation promotes stop shops for business registration in An effective regulatory environment im-economic growth. Economies with better different cities across the country was proves trade performance. Strengtheningbusiness regulation grow faster. One followed by a 5.2% increase in new the institutional environment forstudy found that for economies in the ﬁrm registrations.26 trade—such as by increasing customsbest quartile of business regulation as efficiency—can boost trade volumes.34measured by Doing Business, the differ- • In Mexico a study analyzing the effects In Sub-Saharan Africa an inefficient tradeence in business regulation with those of a program simplifying municipal environment was found to be among thein the worst quartile is associated with a licensing found that it led to a 5% main factors in poor trade performance.352.3 percentage point increase in annual increase in the number of registered One study found that a 1-day reduction ingrowth rates.18 Another found that regula- businesses and a 2.2% increase in inland travel times leads to a 7% increasetory reforms making it easier to do busi- employment. Moreover, competition in exports.36 Another found that amongness in relatively low-income economies from new entrants lowered prices by the factors that improve trade perfor-are associated with an increase in growth 0.6% and the income of incumbent mance are access to ﬁnance, the qualityrates of 0.4 percentage point in the fol- businesses by 3.2%.27 A second study of infrastructure and the government’slowing year.19 found that the program was more ability to formulate and implement sound effective in municipalities with less policies and regulations that promoteSimpler business registration promotes corruption and cheaper additional private sector development.37 The samegreater entrepreneurship and ﬁrm pro- registration procedures.28 Yet another study showed that the more constrainedductivity. Economies that have efficientbusiness registration also tend to have found that simpler licensing may result economies are in their access to foreigna higher entry rate by new ﬁrms and in both more wage workers and more markets, the more they can beneﬁt fromgreater business density.20 Faster busi- formal enterprises, depending on the improvements in the investment climate.ness registration is associated with more personal characteristics of informal Yet another study found that improve-businesses registering in industries with business owners: those with charac- ments in transport efficiency and thethe strongest potential for growth, such teristics similar to wage workers were business environment have a greateras those experiencing expansionary more likely to become wage workers, marginal effect on exports in lower-global demand or technology shifts.21 And while those with characteristics similar income economies than in high-incomeeasier start-up is associated with more to entrepreneurs in the formal sector ones.38 One study even suggests thatinvestment in industries often sheltered were more likely to become formal behind-the-border measures to improvefrom competition, including transport, business owners.29 logistics performance and facilitate trade

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22 DOING BUSINESS 2013 may have a larger effect on trade, espe- • Brazil’s extensive bankruptcy reform the Doing Business project began. But cially on exports, than tariff reduction in 2005 was associated with a 22% Doing Business made it easier by creating would.39 reduction in the cost of debt and a a common language comparing business 39% increase in the aggregate level of regulations around the world. Other areas of regulation matter for trade credit.47 performance. Economies with good con- Over the past 10 years governments • Introducing streamlined mechanisms tract enforcement tend to produce and worldwide have been actively improving for reorganization has been shown export more customized products than the regulatory environment for domestic to reduce the number of liquidations those with poor contract enforcement.40 companies. Most reforms relating to because it encourages more viable Since production of high-quality output Doing Business topics have been nested ﬁrms to opt for reorganization. Indeed, is a precondition for ﬁrms to become in broader reform programs aimed at it reduced the number of liquidations exporters, reforms that lower the cost of enhancing economic competitiveness, as by 14% in Colombia and by 8.4% in high-quality production increase the posi- in Colombia, Kenya and Liberia. In struc- Belgium.48 One important feature of tive effect of trade reforms.41 Moreover, turing reform programs for the business Colombia’s new system is that it bet- reforms removing barriers to trade need environment, governments use multiple ter distinguishes between viable and to be accompanied by other reforms, data sources and indicators. This recog- nonviable ﬁrms, making it more likely such as those making labor markets more nizes the reality that the Doing Business that ﬁnancially distressed but funda- ﬂexible, to increase productivity and data on their own provide an incomplete mentally viable ﬁrms will survive. growth.42 roadmap for successful business regula- • Improving investor protections, tion reforms.50 It also reﬂects the need to Sound ﬁnancial market infrastructure— developing ﬁnancial markets and respond to many stakeholders and inter- including courts, creditor and insolvency promoting more active markets for cor- porate control reduce the persistence est groups, all of whom bring important laws, and credit and collateral registries— of family-controlled ﬁrms over time, issues and concerns to the reform debate. improves access to credit. Businesses worldwide identify access to credit as one expanding opportunity for ﬁrms with When the World Bank Group engages with of the main obstacles they face.43 Good more diversiﬁed capital structures.49 governments on the subject of improving credit information systems and strong the investment climate, the dialogue aims collateral laws help overcome this ob- HOW GOVERNMENTS USE to encourage the critical use of the Doing stacle. An analysis of reforms improving DOING BUSINESS Business data—to sharpen judgment collateral law in 12 transition economies Doing Business offers policy makers a and promote broad-based reforms that concludes that they had a positive effect benchmarking tool useful in stimulating enhance the investment climate rather on the volume of bank lending.44 Greater policy debate, both by exposing poten- than a narrow focus on improving the information sharing through credit tial challenges and by identifying good Doing Business rankings. The World Bank bureaus is associated with higher bank practices and lessons learned. The initial Group uses a vast range of indicators and proﬁtability and lower bank risk. And debate on the results highlighted by the analytics in this policy dialogue, including stronger creditor rights and the existence data typically turns into a deeper discus- its Global Poverty Monitoring Indicators, of public or private credit registries are sion on the relevance of the data to the World Development Indicators, Logistics associated with a higher ratio of private economy and on areas where business Performance Indicators and many others. credit to GDP.45 regulation reform is needed, including The open data initiative has made data areas well beyond those measured by for many such indicators conveniently Country-speciﬁc studies conﬁrm that Doing Business. available to the public at http://data efficient debt recovery and exit processes are key in determining credit conditions .worldbank.org. Reform-minded governments seeking and in ensuring that less productive ﬁrms success stories in business regulation are either restructured or exit the market: refer to Doing Business for examples (box METHODOLOGY AND DATA • In India the establishment of special- 2.2). Saudi Arabia, for example, used The Doing Business data are based on ized debt recovery tribunals had a the company law of France as a model domestic laws and regulations as well range of positive effects, including for revising its own law. Many African as administrative requirements. The data speeding up the resolution of debt re- governments look to Mauritius—the cover 185 economies—including small covery claims, allowing lenders to seize region’s strongest performer on Doing economies and some of the poorest more collateral on defaulting loans, Business indicators—as a source of good economies, for which little or no data increasing the probability of repayment practices to inspire regulatory reforms in are available in other data sets. (For a by 28% and reducing interest rates on their own countries. Governments shared detailed explanation of the Doing Business loans by 1–2 percentage points.46 knowledge of business regulations before methodology, see the data notes.)

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ABOUT DOING BUSINESS: MEASURING FOR IMPACT 23 insolvency—the time component and BOX 2.2 HOW ECONOMIES HAVE USED DOING BUSINESS IN REGULATORY REFORM part of the cost component (where fee PROGRAMS schedules are lacking) are based on ac- To ensure the coordination of efforts across agencies, such economies as Brunei tual practice rather than the law on the Darussalam, Colombia and Rwanda have formed regulatory reform committees, re- porting directly to the president. These committees use the Doing Business indicators as books. This introduces a degree of judg- one input to inform their programs for improving the business environment. More than ment. The Doing Business approach has 35 other economies have formed such committees at the interministerial level. In East therefore been to work with legal prac- and South Asia they include India; Korea; Malaysia; the Philippines; Taiwan, China; and titioners or professionals who regularly Vietnam. In the Middle East and North Africa: Morocco, Saudi Arabia and the United undertake the transactions involved. Arab Emirates. In Eastern Europe and Central Asia: Georgia, Kazakhstan, Kosovo, the Kyrgyz Republic, the former Yugoslav Republic of Macedonia, Moldova, Montenegro Following the standard methodological and Tajikistan. In Sub-Saharan Africa: Botswana, Burundi, the Central African Republic, approach for time-and-motion stud- the Comoros, the Democratic Republic of Congo, the Republic of Congo, Côte d’Ivoire, ies, Doing Business breaks down each Kenya, Liberia, Malawi, Mali, Nigeria, Sierra Leone, Togo and Zambia. And in Latin process or transaction, such as starting America: Chile, the Dominican Republic, Guatemala, Mexico, Panama and Peru. Since a business or registering a building, 2003 governments have reported more than 350 regulatory reforms that have been informed by Doing Business.1 into separate steps to ensure a better Many economies share knowledge on the regulatory reform process related to the estimate of time. The time estimate for areas measured in Doing Business. Among the most common venues for this knowl- each step is given by practitioners with edge sharing are peer-to-peer learning events—workshops where officials from dif- significant and routine experience in ferent governments across a region or even across the globe meet to discuss the chal- the transaction. When time estimates lenges of regulatory reform and share their experiences. In recent years such events differ, further interactions with respon- have taken place in Colombia (for Latin America and the Caribbean), in Rwanda (for Sub-Saharan Africa), in Georgia (for Eastern Europe and Central Asia), in Malaysia (for dents are pursued to converge on one East Asia and the Paciﬁc) and in Morocco (for the Middle East and North Africa). In estimate that reflects the majority of addition, regional organizations such as APEC, featured in a case study in this year’s applicable cases. report, use the Doing Business data as a tool and common language to set an agenda for business regulation reform. The Doing Business approach to data col- 1. These are reforms for which Doing Business is aware that information provided by the Doing lection contrasts with that of ﬁrm surveys, Business report was used in shaping the reform agenda. which capture perceptions and experi- ences of businesses. A corporate lawyer registering 100–150 businesses a year willDoing Business respondents answer the surveys related to trading be more familiar with the process than anOver the past 10 years more than 18,000 across borders, taxes and construction entrepreneur, who will register a businessprofessionals in 185 economies have as- permits. Certain public officials (such as only once or maybe twice. A bankruptcysisted in providing the data that inform registrars from the commercial or prop- attorney or judge dealing with dozens ofthe Doing Business indicators. This year’s erty registry) also provide information cases a year will have more insight intoreport draws on the inputs of more than that is incorporated into the indicators. bankruptcy than a company that may9,600 professionals.51 Table 20.2 in the Information sources for the data undergo the process once.data notes lists the number of respon-dents for each indicator set. The Doing Most of the Doing Business indicators Development of the methodologyBusiness website shows the number of are based on laws and regulations. In The methodology for calculating eachrespondents for each economy and each addition, most of the cost indicators are indicator is transparent, objective andindicator. Respondents are professionals backed by official fee schedules. Doing easily replicable. Leading academicswho routinely administer or advise on Business respondents both ﬁll out written collaborate in the development of thethe legal and regulatory requirements questionnaires and provide references indicators, ensuring academic rigor. Eightcovered in each Doing Business topic. to the relevant laws, regulations and of the background papers underlying theThey are selected on the basis of their fee schedules, aiding data checking and indicators have been published in leadingexpertise in the speciﬁc areas covered by quality assurance. Having representative economic journals.52Doing Business. Because of the focus on samples of respondents is not an issue, aslegal and regulatory arrangements, most the texts of the relevant laws and regula- Doing Business uses a simple averagingof the respondents are legal professionals tions are collected and answers checked approach for weighting componentsuch as lawyers, judges or notaries. The for accuracy. indicators and calculating rankings andcredit information survey is answered by the distance to frontier measure. Otherofficials of the credit registry or bureau. For some indicators—for example, approaches were explored, includingFreight forwarders, accountants, archi- those on dealing with construction per- using principal components and unob-tects, engineers and other professionals mits, enforcing contracts and resolving served components.53 They turn out to

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24 DOING BUSINESS 2013 yield results nearly identical to those Data adjustments (2008), input from the International of simple averaging. In the absence of a Tax Dialogue and regular input from the All changes in methodology are explained Indicators Advisory Group. strong theoretical framework that assigns in the data notes as well as on the Doing 6. http://www.doingbusiness.org. different weights to the topics covered Business website. In addition, data time for the 185 economies by Doing Business, 7. Local experts in 185 economies are series for each indicator and economy are surveyed annually to collect and the simplest method is used: weighting available on the website, beginning with update the data. The local experts all topics equally and, within each topic, the ﬁrst year the indicator or economy for each economy are listed on the giving equal weight to each of the topic was included in the report. To provide a Doing Business website (http://www components (for more details, see the .doingbusiness.org) and in the comparable time series for research, the chapter on the ease of doing business and acknowledgments at the end of data set is back-calculated to adjust for this report. distance to frontier).54 changes in methodology and any revi- 8. De Soto 2000. sions in data due to corrections. The data Improvements to the 9. Schneider 2005; La Porta and Shleifer set is not back-calculated for year-to-year 2008. methodology revisions in income per capita data (that 10. Amin 2011. The methodology has undergone con- is, when the income per capita data are 11. http://www.enterprisesurveys.org. tinual improvement over the years. For revised by the original data sources, Doing 12. Narayan and others 2000. enforcing contracts, for example, the Business does not update the cost mea- 13. OECD, “Indicators of Product Market amount of the disputed claim in the case sures for previous years). The website Regulation,” http://www.oecd.org/. study was increased from 50% of income The measures are aggregated into also makes available all original data sets per capita to 200% after the ﬁrst year of 3 broad families that capture state used for background papers. data collection, as it became clear that control, barriers to entrepreneurship smaller claims were unlikely to go to Information on data corrections is provid- and barriers to international trade and court. investment. The 39 countries included ed in the data notes and on the website. A in the OECD market regulation indica- transparent complaint procedure allows tors are Australia, Austria, Belgium, Another change related to starting a anyone to challenge the data. If errors Brazil, Canada, Chile, China, the Czech business. The minimum capital require- Republic, Denmark, Estonia, Finland, are conﬁrmed after a data veriﬁcation ment can be an obstacle for potential France, Germany, Greece, Hungary, process, they are expeditiously corrected. entrepreneurs. Doing Business measured Iceland, India, Ireland, Israel, Italy, the required minimum capital regardless Japan, Korea, Luxembourg, Mexico, the of whether it had to be paid up front or Netherlands, New Zealand, Norway, NOTES Poland, Portugal, Russia, the Slovak not. In many economies only part of the 1. World Bank 2005; Stampini and others Republic, Slovenia, South Africa, Spain, minimum capital has to be paid up front. 2011. Sweden, Switzerland, Turkey, the United To reﬂect the relevant barrier to entry, the 2. See, for example, Alesina and others Kingdom and the United States. paid-in minimum capital has been used (2005); Perotti and Volpin (2005); 14. The World Economic Forum’s Global rather than the required minimum capital. Fisman and Sarria-Allende (2010); Competitiveness Report uses Doing Antunes and Cavalcanti (2007); Business data sets on starting a busi- This year’s report includes an update in Barseghyan (2008); Klapper, Lewin ness, employing workers, protecting and Quesada Delgado (2009); Freund investors and getting credit (legal the ranking methodology for paying taxes. and Bolaky (2008); Chang, Kaltani and rights), representing 7 of a total of 113 Last year’s report introduced a threshold Loayza (2009); Helpman, Melitz and different indicators (or 6.19%). for the total tax rate for the purpose of Rubinstein (2008); Klapper, Laeven and 15. Hallward-Driemeier, Khun-Jush and calculating the ranking on the ease of pay- Rajan (2006); World Bank (2005); and Pritchett (2010), analyzing data from ing taxes. This change came as a result of Ardagna and Lusardi (2010). World Bank Enterprise Surveys for consultations on the survey instrument 3. This includes Djankov and others Sub-Saharan Africa, show that de (2002); Djankov, McLiesh and Shleifer jure measures such as Doing Business and methodology for the paying taxes (2007); Djankov, La Porta and others indicators are virtually uncorrelated indicators with external stakeholders, (2008); Djankov, Freund and Pham with ex post ﬁrm-level responses, including participants in the International (2010); Djankov and others (2003); providing evidence that deals rather Tax Dialogue. All economies with a total Djankov, Hart and others (2008); than rules prevail in Africa. The authors tax rate below the threshold (which is Botero and others (2004); and Djankov ﬁnd that the gap between de jure and de and others (2010). facto conditions grows with the formal calculated and adjusted on a yearly basis) 4. For more details on how the aggregate regulatory burden. The evidence also now receive the same ranking on the total ranking is created, see the chapter on shows that more burdensome processes tax rate indicator. This year’s threshold is the ease of doing business and distance open up more space for making deals set at the 15th percentile of the total tax to frontier. and that ﬁrms may not incur the official rate distribution, which translates into a 5. This has included a review by the World costs of compliance but still pay to threshold for the total tax rate of 25.7%. Bank Independent Evaluation Group avoid them.

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ABOUT DOING BUSINESS: MEASURING FOR IMPACT 2516. Much attention has been given to 27. Bruhn 2011. their resources and the credit supply exploring links to microeconomic 28. Kaplan, Piedra and Seira 2007. becomes elastic. outcomes, such as ﬁrm creation and 29. Bruhn 2012. employment. Recent research focuses 47. Funchal 2008. on how business regulations affect the 30. Aghion and others 2008. 48. Giné and Love (2010) on Colombia; behavior of ﬁrms by creating incentives 31. Sharma 2009. (or disincentives) to register and oper- Dewaelheyns and Van Hulle (2008) on 32. Chari 2011. ate formally, to create jobs, to innovate 33. Branstetter and others 2010. Belgium. and to increase productivity. For details, 34. Djankov, Freund and Pham 2010. 49. Franks and others 2011. see Djankov and others (2002); Alesina and others (2005); Banerjee and Duﬂo 35. Iwanow and Kirkpatrick 2009. 50. One recent study using Doing Business (2005); Perotti and Volpin (2005); 36. Freund and Rocha 2011. indicators illustrates the difficulties in Klapper, Laeven and Rajan (2006); 37. Seker 2011. Fisman and Sarria-Allende (2010); using highly disaggregated indicators 38. Portugal-Perez and Wilson 2011. Antunes and Cavalcanti (2007); to identify reform priorities (Kraay and 39. Hoekman and Nicita 2011. Barseghyan (2008); Eifert (2009); Tawara 2011). Klapper, Lewin and Quesada Delgado 40. Nunn 2007. (2009); Djankov, Freund and Pham 41. Rauch 2010. 51. While about 9,600 contributors (2010); Klapper and Love (2011a); Chari 42. Chang, Kaltani and Loayza 2009; Cuñat provided data for this year’s report, (2011); and Bruhn (2011). and Melitz 2007. many of them completed a survey for17. According to searches for citations of 43. http://www.enterprisesurveys.org. more than one Doing Business indicator the 9 background papers that serve as 44. Haselmann, Pistor and Vig 2010. set. Indeed, the total number of surveys the basis for the Doing Business indica- The countries studied were Bulgaria, tors in the Social Science Citation Index completed for this year’s report is more Croatia, the Czech Republic, Estonia, and on Google Scholar (http://scholar than 12,000, which represents a truer Hungary, Latvia, Lithuania, Poland, .google.com). Romania, the Slovak Republic, Slovenia measure of the inputs received. The18. Djankov, McLiesh and Ramalho 2006. and Ukraine. average number of surveys per indicator19. Eifert 2009. 45. Djankov, McLiesh and Shleifer 2007;20. Klapper, Lewin and Quesada Delgado Houston and others 2010. set and economy is just under 6. 2009. Entry rate refers to newly 46. Visaria 2009. In a follow-up study, von For more details, see http://www registered ﬁrms as a percentage of total Lilienfeld-Toal, Mookherjee and Visaria .doingbusiness.org/contributors/ registered ﬁrms. Business density is de- (2012) found that the average effects doing-business. ﬁned as the total number of businesses identiﬁed by Visaria (2009) differ as a percentage of the working-age between wealthy and poor borrowers 52. All background papers are available on population (ages 18–65). when the credit supply is inelastic the Doing Business website (http://www21. Ciccone and Papaioannou 2007. (because of limits in such resources .doingbusiness.org).22. Alesina and others 2005. as funds, staff and information). In particular, they found that in the short 53. For more details, see the chapter on the23. Loayza, Oviedo and Servén 2005; Barseghyan 2008. term after the debt recovery tribunals ease of doing business and distance to are introduced, borrowers with less24. Dulleck, Frijters and Winter-Ebmer frontier. collateral may experience a reduction 2006; Calderon, Chong and Leon 2007; in access to credit while those with 54. A technical note on the different Micco and Pagés 2006. more collateral may experience an aggregation and weighting methods is25. Masatlioglu and Rigolini 2008; Djankov increase. But the authors also point out 2009. that this short-term effect disappears available on the Doing Business website26. Cardenas and Rozo 2009. over time as banks are able to increase (http://www.doingbusiness.org).

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26 Colombia: sustaining reforms over time  Colombia’s experience shows the Over the past several decades Colombia in August 2010, the new government, importance of sustaining reform has pursued a broad range of structural led by President Juan Manuel Santos, efforts over time and adjusting and institutional reforms. The emphasis has been pushing forward an economic them to the changing needs of the has shifted over the years, reﬂecting the reform agenda through the “Prosperity economy, whether at the national priorities of different administrations and for All” national development plan for or local level. the perceived needs of the economy. In 2010–14. The plan’s overall goals are the 1980s and early 1990s much of the to reduce poverty, increase income,  Colombia is a regional leader in focus was on macroeconomic manage- generate employment, improve security, narrowing the gap with the world’s ment.1 As progress was made in laying ensure the sustainable use of natural re- most efﬁcient regulatory practice. a ﬁrm foundation of macroeconomic sources and improve the quality of the  Over time, the focus of Colombia’s stability, the focus shifted to other ar- business environment.4 reform efforts has shifted from eas. The government gave particular reducing the cost and complexity SUSTAINED EFFORT emphasis to policies and institutions of business regulation to AT THE NATIONAL LEVEL seen as central to enhancing productivity strengthening legal institutions. and growth and boosting the country’s As Colombia has improved its business  Colombia’s most notable competitiveness. As part of this, it set regulatory environment, results have regulatory improvements have in motion reforms aimed at improving shown in Doing Business indicators— been in the areas of starting a the regulatory framework and the rules including those on starting a business, business, paying taxes, protecting underpinning private sector activity. The paying taxes, protecting investors and investors and resolving insolvency. Ministry of Commerce, Industry and resolving insolvency. Indeed, thanks  While development hurdles Tourism led a coordinated reform effort to its sustained efforts, Colombia has remain, Colombia’s regulatory bringing together government agencies, made greater progress toward the reforms have increased its the Congress and the judiciary as well as frontier in regulatory practice since competitiveness and have had local the private sector. 2005 than any other Latin American and regional “spillover” effects. economy (figure 3.1). In 2007 Colombia’s government further institutionalized its commitment to regu- Other indicators also reﬂect the im- latory reform by establishing the Private provements. The total number of newly Council for Competitiveness. A public- registered businesses in the country private partnership, the council is made rose from 33,752 in 2006 to 57,768 up of business associations and private in 2011.5 Colombia’s performance on sector players working closely with the several relevant measures compiled by government to promote sound, business- the Worldwide Governance Indicators friendly regulatory practices.2 project improved between 2002 and 2010—including the Rule of Law Index Recent administrations have continued (reﬂecting perceptions of the extent to use national development plans to to which ﬁrms have conﬁdence in and establish a clear economic agenda. In abide by the rules of society) and the 2009 President Alvaro Uribe highlighted Regulatory Quality Index (capturing Colombia’s progress and his govern- perceptions of the government’s abil- ment’s plans for new regulatory reforms ity to formulate and implement sound aimed at further gains in competitive- policies and regulations that permit and ness.3 And since the change of legislature promote private sector development).6

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COLOMBIA: SUSTAINING REFORMS OVER TIME 27FIGURE 3.1 Colombia has outpaced the region in advancing toward the frontier in regulatory practice Progress in narrowing distance to frontier since 2005 (percentage points)5 15.30 10.4 10.1 9.4 8.8 8.8 Antigua and Barbuda St. Kitts and Nevis 6.7 6.6 6.6 6.5 Venezuela, RB5 4.6 4.3 3.9 3.9 3.6 3.6 2.6 2.5 1.7 1.5 1.4 1.4 0.6 0.5 0.00 1.2 1.1 0.9 0.95 Colombia Guatemala Peru Mexico Uruguay Dominican Republic Costa Rica Nicaragua Honduras Paraguay Jamaica El Salvador Latin America & Caribbean average Ecuador Chile Haiti Trinidad and Tobago Puerto Rico (U.S.) Bolivia Guyana Grenada Belize Panama Argentina Dominica St. Vincent and the Grenadines Brazil St. Lucia Suriname -0.5 -0.5 -3.7lombia Guatemala Peru Uruguay CostaNicaragua ParaguayEl Salvador Ecuador Chile Haiti Rico (U.S.) Guyana St. VincentArgentina Dominican Republic Rica Honduras & Caribbean average Trinidad Puerto Mexico Latin America Jamaica and Tobago Bolivia Grenada Panama the GrenadinesBrazil Antigua and Venezuela, RB Belize and Dominica St. Lucia and Nevis St. Kitts Suriname BarbudaNote: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005. The measureis normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The ﬁgure shows the absolute difference for each economy between its distance to frontierin 2005 and that in 2012. No data are shown for The Bahamas and Barbados, which were added to the Doing Business sample after 2005.Source: Doing Business database.And Colombia’s ranking on the ease of Choosing a reform path reforms, it ﬁrst completed those aimeddoing business rose from 79 among the While Colombia simultaneously pur- at streamlining business regulation and175 economies included in 2006 to 45 sued very different types of regulatory reducing its cost to companies. Untilamong the 185 included in 2012. 2008 the focus was largely on reducing transactions costs, such as by simplify- ing business start-up procedures or taxFIGURE 3.2 A trend toward stronger legal institutions and less expensive regulatory processes in Colombia administration. These types of reforms Average distance to frontier in sets of Doing Business indicators have continued since 2008, but the focus has shifted toward strengthening legal Stronger Stronger legal institutions but more Stronger legal institutions and simpler and institutions such as bankruptcy systems complex and expensive regulatory processes less expensive regulatory processes and investor protections (ﬁgure 3.2). Strength of legal institutions 2012 This sequencing of reforms is not unusu- al. Many economies have focused ﬁrst on simplifying regulatory transactions 2006 for businesses, then moved on to more 2012 complex and time-consuming reforms 2006 aimed at improving legal institutions such as court systems. Such reforms require more sustained efforts, often over Weaker Weaker legal institutions and more Weaker legal institutions but simpler and a period of several years. complex and expensive regulatory processes less expensive regulatory processes Encouraging business start-ups Complex and Complexity and cost Simple and expensive of regulatory processes inexpensive Regulatory reforms implemented by Colombia Global average Colombia in recent years have made a clear difference in the ease of starting aNote: Strength of legal institutions refers to the average distance to frontier in getting credit, protecting investors, enforcing business as measured by Doing Business.contracts and resolving insolvency. Complexity and cost of regulatory processes refers to the average distance to frontierin starting a business, dealing with construction permits, registering property, paying taxes and trading across borders. The They have reduced the time required todistance to frontier measure shows how far on average an economy is from the best performance achieved by any economy oneach Doing Business indicator since 2005. start a business from 60 days to 14, theSource: Doing Business database. cost from 28% of income per capita to

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28 DOING BUSINESS 2013 8% and the number of procedures from FIGURE 3.3 Starting a business is now faster and less costly in Colombia 19 to 9 in 2011 (ﬁgure 3.3). Procedures (number) Cost (% of income Time (days) per capita) The introduction and subsequent upgrades 50 70 of one-stop shops for business registration at chambers of commerce account for 60 40 much of the change. The ﬁrst one-stop 50 shops started to operate in May 2003. As 30 the changes in the start-up process yielded 40 positive results, the government continued 30 20 to improve it. In 2005, for example, Law 962—the “antitrámites“ (“antipaperwork”) 20 10 law—eliminated around 80 bureaucratic 10 processes required to start a business and 0 0 introduced a provision preventing govern- 2003 2004 2005 2006 2007 2008 2009 2010 2011 ment agencies from creating new proce- Procedures Time Cost dures. It also simpliﬁed the procedures required by allowing electronic submission Source: Doing Business database. of documents and eliminating the need to have signatures notarized. payments. This form simpliﬁed tax Thanks to these continued efforts, paying compliance for Colombian businesses by taxes as measured by Doing Business be- More improvements came in 2010. A new combining into a single online payment came considerably easier between 2004 public-private health provider, Nueva EPS, replaced the previous provider admin- all contributions for social security, the and 2010. The number of payments fell istered by the Social Security Institute. from 69 a year to 9, and the time needed welfare security system and labor risk The new system enables employers and to prepare and ﬁle taxes from 456 hours insurance. employees to register for health services a year to 193. And the total tax rate de- in just 1 week. In addition, Colombia in- To further improve and simplify tax com- clined from 82.1% of proﬁt to 74.8% in troduced online preenrollment for new this period (ﬁgure 3.4). pliance, in 2010 the government made companies, making registration faster electronic ﬁling of corporate income tax Enhancing investor protections and simpler. and value added tax mandatory for ﬁrms Starting in 2005, Colombia implemented New regulations recently introduced a with annual sales exceeding 500 million 3 major legal reforms aimed at strength- progressive fee schedule for new compa- Colombian pesos (about $280,000) in or ening investor protections. In 2005 nies.7 The fee schedule exempts new ﬁrms after 2008. Colombia enacted Law 964, providing from up-front payment of regulatory fees during their ﬁrst few years of operation. FIGURE 3.4 Colombia has made tax compliance simpler for businesses And the start-up fee associated with the commercial license is no longer required. Payments (number per year) Total tax rate Time (hours per year) (% of profit) Simplifying tax compliance 500 100 Over the years Colombia has greatly improved its tax and social security com- 400 80 pliance processes. In 2002, as the gov- ernment realized that about a third of its 300 60 potential revenue from corporate income, personal income and value added taxes 200 40 went uncollected, it decided to introduce an electronic payment system in an at- 100 20 tempt to lower tax evasion.8 0 0 In 2009 the government lowered cor- 2004 2005 2006 2007 2008 2009 2010 porate income tax rates and introduced Payments Time Total tax rate an online form for social contribution Source: Doing Business database.

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COLOMBIA: SUSTAINING REFORMS OVER TIME 29FIGURE 3.5 Legal and regulatory changes have strengthened investor protections in Colombia imposed more stringent time limits for negotiating reorganization agreements. 10 In 2009 the government issued several 8 decrees as part of continued efforts to better regulate the profession of in- 6 solvency administrators. In addition, it introduced an electronic ﬁling system 4 to make insolvency proceedings faster and more efficient. And it eliminated the requirement to submit ﬁnancial state- 2 ments to request reorganization in cases where these statements had previously 0 2005 2006 2007 2008 2009 2010 2011 been submitted to the Superintendence Ease of shareholder suits index (0–10) Strength of investor protection index (0–10) of Companies. Extent of disclosure index (0–10) Extent of director liability index (0–10)Source: Doing Business database. Improving other areas of regulation Colombia has also made improvementsa modern framework for capital market measures the approval and disclosure in other areas of regulation. In 1995 theactivity. The law encourages better cor- regime for related-party transactions; country undertook a complete overhaulporate governance practices by requiring ﬁgure 3.5).greater transparency and disclosure, eq- of its construction approvals. It moveduitable treatment of minority sharehold- Making insolvency the administration of building permitsers and more effective boards of directors. proceedings more efficient out of the state-run planning office into Colombia’s insolvency reforms began the private domain, becoming the ﬁrstIn 2007 the government amended almost 2 decades ago. In 1995 the enact- economy in Latin America to privatize theColombia’s securities regulation. Decree ment of Law 222, allowing debtors and review process. This move carried risks,3139 requires listed companies to report creditors to resolve disputes before the but public and private stakeholders in themore information to investors. Before, Superintendence of Companies, helped country were calling for comprehensivelisted companies had to report any “rel- ease the burden on the judiciary. In change.evant” or “extraordinary” event—a sub- 1999 changes to the reorganization lawjective standard open to abuse. Although improved the existing corporate reor- Bogotá’s mayor ﬁrst appointed 5 ad hocthe decree still includes the broad “rel- ganization proceedings and introduced “urban curators,” all architects or engi-evant” requirement, it lists speciﬁc events new time limits for negotiations. These neers with construction experience, tothat must be disclosed to the ﬁnancial changes increased the efficiency of the review building permit applications. Soonauthorities. It also requires companies to bankruptcy system and improved its ca- after, a more transparent, merit-basedreport extensive information before going pacity to distinguish between viable and hiring system was established that is stillpublic. nonviable businesses.9 in place. Potential curators now undergo a selection process that includes examsIn 2010 the government made further Another series of insolvency reforms took and interviews with public and privateprogress by amending the company law. place in the past 6 years. Thanks to these sector experts. Privatizing the issuance ofThe amendments clariﬁed the liability reforms, creditors’ recovery rate rose building permits improved timeliness andregime for company directors involved in from 56 cents on the dollar to 76 and therelated-party transactions that harm the freed up the planning office’s resources. time to complete a liquidation proceedingcompany. Now directors can be forced to fell from 3 years to 1.3. In other regulatory areas, introducingpay damages and disgorge proﬁts made The reforms began with a comprehensive electronic systems made processes eas-from such transactions. revision of the insolvency proceedings ier. When registering property, a businessAs a result of these changes, Colombia’s available. In 2007 authorities introduced can now obtain online certiﬁcation ofscores have improved on both the extent 2 new proceedings: a reorganization valuation, ownership and good standingof director liability index (which measures procedure to restructure insolvent for property taxes. And for properties withthe liability of company executives for companies and a mandatory liquidation no liens, it can submit online certiﬁcatesabusive related-party transactions) and procedure. And a new insolvency law directly to the land registry. Certiﬁcatesthe extent of disclosure index (which have no cost if requested online.

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30 DOING BUSINESS 2013 An electronic data interchange system Neiva’s local government also set up at boosting productivity. The steady pace was introduced for exports, making it one-stop shops for registering new of change led to the development of the possible to centralize electronic data. companies. This eliminated 11 procedures broader competitiveness agenda and the The new system also allows traders to and reduced the time required to register creation of a public-private partnership pay duties electronically, eliminating the a business from 32 days to 8. The suc- aimed at promoting business-friendly need to go to a bank to submit payments. cess of the one-stop shops has been due regulatory practices. And it allows shippers to share informa- largely to cooperation between municipal tion with customs electronically, so that and national government departments. Yet despite the government’s sustained customs declarations can be processed efforts, and its success in improving the before the vessel even arrives at the port. Medellín is another city that substantially business climate and implementing an Most importantly, since 2008 Colombia improved its business regulatory environ- ambitious competitiveness agenda, a has implemented improvements to the ment. The city government cut 3 proce- number of challenges remain. Addressing Single Window for Foreign Trade (VUCE) dures required to start a business by im- income inequality remains a key priority, system. The system now connects over proving one-stop shops and eliminating in part because it would strengthen sup- the requirement for a land use certiﬁcate. port in the business community and in a dozen government agencies that are And it made registering property easier civil society for the government’s overall involved in import and export procedures. by merging 2 certiﬁcates and eliminating development strategies. a stamp previously required as proof of SPILLOVER TO THE While the country has more development registration tax compliance. LOCAL LEVEL hurdles to overcome, the measures taken Colombia has been actively reforming over the past years have greatly improved CONCLUSION its regulatory environment at the local its competitiveness. The regulatory Colombia’s commitment to regulatory re- as well as the national level. Local efforts reforms may take more time to show full form has led to substantial improvements have been inspired in part by a subnation- results in all areas of doing business, in the quality of the business environment al study. Carried out through the National but they have already led to substantial and a more solid foundation for private Department of Planning, the 2008 study immediate beneﬁts. Colombia’s reform sector development. Its experience shows was designed to analyze the regulatory agenda is expected to continue to the importance of sustaining reform ef- environment in different regions with the expand—and to inspire further improve- forts over time and adjusting them to the aim of improving regional competitive- ments in the region. changing needs of the economy. Initially, ness across the country. The study was most of the regulatory reforms took place also intended to enable Colombian cities at the national level. But as the business NOTES to learn from one another and adopt good environment continued to improve, the This case study was written by Valentina practices from elsewhere in the country. reforms spilled over to the local level. Saltane and Hayane Chang Dahmen. The subnational Doing Business report re- 1. According to the International Monetary Colombia’s experience is having sulting from the study was soon followed Fund, average annual inﬂation in “spillover” effects in the region as well. by another, and work on a third began in Colombia fell from 23% in the 1980s to Bolivia has shown an interest in learning 6% by the 2000s. Management of public 2012.10 The second report showed that more about Colombia’s experience with ﬁnances also improved, with public deﬁ- all 12 cities included in the ﬁrst one had business entry. Paraguay has sought to cits in recent years lower as a percentage improved on at least one Doing Business learn from Colombia’s innovations in of GDP. Colombia’s general government indicator. construction permitting. And both Costa public debt was 35.9% of GDP in 2009, Rica and El Salvador intend to learn from low by international standards (“IMF Among these 12 cities, Neiva made the Data Mapper,” http://www.imf.org/). Colombia’s trade logistics reforms. most progress in improving the ease of 2. Consejo Privado de Competitividad, doing business. Local authorities took Colombia’s experience also shows the http://www.compite.com.co/site/ several measures to increase the city’s importance of setting out economic sistema-nacional-de-competitividad/. competitiveness, including creating an policy objectives. The government’s com- 3. Remarks delivered before the Americas anti-red-tape committee to reduce the mitment to well-deﬁned, long-term eco- Society/Council of the Americas, regulatory burden on the private sec- nomic goals has helped drive implemen- September 24, 2009. Available at http:// tor. The committee encompassed wide tation of the reforms. Having made major www.as-coa.org/article.php?id=1908. representation, with participants from the strides in safeguarding macroeconomic 4. International Fund for Agricultural municipality, the chamber of commerce, stability, the government widened the Development, “Rural Poverty Portal,” business associations and national agen- focus of its policies to include a range of http://www.ruralpovertyportal.org/. cies such as police and tax authorities. institutional and economic reforms aimed 5. Doing Business database; World Bank

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COLOMBIA: SUSTAINING REFORMS OVER TIME 31 Group Entrepreneurship Snapshots database.6. World Bank, Worldwide Governance Indicators, “2011 Update,” http://www .govindicators.org. The Rule of Law Index and the Regulatory Quality Index both range from −2.5 (weak) to 2.5 (strong). On the Rule of Law Index Colombia’s score rose from −0.84 in 2002 to −0.33 in 2010. On the Regulatory Quality Index its score rose from 0.05 in 2002 to 0.31 in 2010.7. Law 1429 of 2010 and Decree 545 of 2011.8. Sohn 2008.9. Giné and Love 2010.10. Subnational Doing Business reports are available at http://www.doingbusiness .org/reports/subnational-reports.

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32 Latvia: maintaining a reform state of mind  For Latvia, accession to the Latvia has made substantial economic signiﬁcant improvements to its regulatory European Union has been among progress since its transition to a liberal environment—advancing further toward the main motivations for improving market economy in the 1990s. Income the frontier in regulatory practice than business regulation. per capita has more than tripled over the almost all other EU member economies past 15 years despite a deep recession fol- (ﬁgure 4.1)? And what lessons can be  Latvia’s reform agenda has lowing the global ﬁnancial crisis.1 Exports learned about this “reform state of mind” beneﬁted from strong public grew by almost 7% a year in the 2000s, demonstrated by Latvia? support for economic integration. and the share of the population living  Since 2004 the country has made on less than $4 a day fell from 25.8% in REFORMING FOR THE positive changes across all areas 1998 to 3.4% in 2008, the latest year for EUROPEAN UNION measured by Doing Business. which this information is available.2 Broad consensus for reform emerged in  Despite being substantially Latvia in the late 1990s, as the country affected by the ﬁnancial crisis Economic reforms have been a central transitioned to a liberal market economy starting in 2008, Latvia continued part of this process. Structural reforms after regaining independence in 1991. its reform agenda, adapting it to have increased competitiveness and Integration into the world economy was a the new challenges the country facilitated integration with the world commonly held goal, and the Latvian gov- was facing. economy. Reforms to business laws and ernment and business community began regulations have substantially improved a dialogue on how to achieve it. Latvia the investment climate. Since the late joined the World Trade Organization in 1990s successive governments have 1999, then targeted membership in the held a regular dialogue with the private European Union. sector and international organizations to identify and implement ways to stream- The goal of EU accession provided a line business registration, improve the structure for an array of legislative and tax system and increase the efficiency of regulatory reforms. The EU member- international trade, among many other ship requirements, known as the such reforms.3 Copenhagen criteria, provided a series of general directives for reforms centered These reform efforts have been sustained on democratic governance, human rights, through changing domestic and interna- a market economy and commitment to tional conditions. They began as part of a European integration. Latvia also began process to join the European Union (EU). harmonizing its laws with the body of They continued during a period of rapid EU legislation, the acquis communautaire, growth in the mid-2000s. And they have including in ways to reduce administra- persisted during the signiﬁcant economic tive barriers to investment. In 1999 the downturn following the ﬁnancial crisis. Latvian Cabinet of Ministers adopted Throughout this transition there were an action plan to improve the business many changes in political leadership— environment and welcomed support but the commitment to legislative and from international ﬁnancial institutions to regulatory reform endured. implement the reforms.4 What enabled this continued commitment These reform efforts proved very suc- to reform? How has Latvia made such cessful: by 2003, 91 of 106 reforms

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LATVIA: MAINTAINING A REFORM STATE OF MIND 33FIGURE 4.1 Latvia has made big advances toward the frontier in regulatory practice Progress in narrowing distance to frontier since 2005 (percentage points) 12.39 9.8 9.5 9.0 8.6 8.26 7.1 7.0 5.0 4.9 4.5 4.4 3.5 3.5 3.0 2.6 2.5 1.9 1.8 1.5 1.4 0.8 0.1 -0.50 Poland Czech Republic Slovenia Portugal France Latvia Romania Greece Bulgaria Denmark Slovak Republic Hungary Sweden Netherlands Spain United Kingdom Belgium Finland Lithuania Italy Austria Ireland Estonia GermanyNote: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005. The measureis normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The ﬁgure shows the absolute difference for each economy between its distance to frontierin 2005 and that in 2012. It shows data for all current EU members except Cyprus, Luxembourg and Malta, which were added to the Doing Business sample after 2005.Source: Doing Business database.initially identiﬁed in 1999 had been imple- of government inspectors and private Latvia enjoyed signiﬁcant growth duringmented.5 During this initial reform phase ﬁrms, introduced a requirement for this initial reform period. From 2000 tothe government focused on improving written reports after all inspections and 2004 GDP growth averaged 7.5%, andaspects of the investment climate that developed performance indicators for unemployment fell from 14.2% to 9.9%.10had been raised as issues by the Latvian inspectorates.7 In May 2004 Latvia achieved its goal ofbusiness community. joining the European Union. Construction permitting was anotherOne focus was streamlining business target of regulatory reform. In 2001 it CONTINUING THE AGENDAregistration. The government simpliﬁed took Latvian businesses 2 years to obtain Latvia’s strong economic performancethe procedures required, such as by all the licenses and inspections required continued after the country became ancombining company and tax registration. to build a warehouse. By 2004 the gov- EU member. From 2005 to 2007 eco-By 2004 starting a business in Latvia took ernment had reduced the time required nomic growth averaged nearly 11% a year.only 5 procedures and 16 days—less time to obtain a building permit by 2 months, The number of newly registered ﬁrmsthan in all but 21 economies covered by simply by preparing a ﬂowchart showing rose from around 7,000 a year to 12,000.Doing Business 2005. The change was what offices to visit and which docu- And exports of goods and services grewdramatic: in 1999 opening a business in ments to take.8 Further improvements by more than 5% a year, with a peak inLatvia had required 17 procedures and 114 followed, including amendments to the growth of 20% in 2005.11days. construction code and the establish- ment of a public register for construction Business regulation reforms continuedThe government also improved business companies. as well. Rather than relaxing the reforminspections. Most business inspectorates agenda after becoming an EU member,in Latvia were perceived as obstructing The government improved tax ad- Latvia continued working to enhance itsrather than enabling legitimate business ministration by amending the laws on competitiveness by bringing its economicin their enforcement of government value added and corporate income tax laws, regulations and institutions furtherregulations. The government requested to resolve speciﬁc issues identiﬁed by into line with those of Western Europeanthat inspectorate reform be included as a businesses. Draft tax legislation was countries.12 The action plan initially estab-conditionality of ﬁnancing from the World posted online for public comment, and an lished in 1999 was regularly amended toBank.6 Later efforts provided new instruc- appeals body was established in the State identify new areas to target with regula-tion on the rights and responsibilities Revenue Service.9 tory reforms. Doing Business has tracked

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34 DOING BUSINESS 2013 the success of many of these reforms FIGURE 4.2 Latvia made transferring property simpler and faster over time. Time to register property (days) 60 One set of improvements made property Between 2004 and 2012 Latvia implemented new electronic registration faster and easier. Businesses 50 capabilities to streamline property registration trying to expand were being hindered by 40 Time cut complex administrative procedures to by 37 days access land, leading to long delays and 30 considerable uncertainty. The govern- 20 ment responded by installing electronic Procedures cut by 5 10 terminals at the land registry, enabling businesses to pay fees and stamp duties 0 1 2 3 4 5 6 7 8 9 10 at the same time that they registered Procedures property. It also granted the land registry 2004 2012 electronic access to municipal tax da- Source: Doing Business database. tabases, eliminating the requirement to obtain the property tax status in paper format. As a result, the time required More recently, Latvia made getting a series of new business regulation re- to transfer property fell from 55 days in electricity easier by streamlining the forms. The crisis highlighted the need for 2004 to 18 in 2012 (ﬁgure 4.2). approval process for connection designs greater resilience to such shocks in the for straightforward projects. Before 2011 future and for greater access to ﬁnance. Construction permitting, a focus of ear- an entrepreneur in Riga had to wait more It also underscored the need to reduce lier efforts, received renewed attention than 6 months to connect a warehouse administrative barriers to investment. in response to investors’ complaints that to the electricity network. Reducing the The Latvian authorities responded with unclear fee schedules were a burden to number of approvals that were required reforms targeting the insolvency regime, construction activity. The government shortened the wait by almost 3 months— the credit information system and corpo- established a more transparent set of a change that earned Latvia recognition rate governance. construction fees and duties, reducing in Doing Business 2012 as having made the cost associated with completing the the biggest improvement in the ease of The insolvency law was amended in 2008 procedures to legally build a warehouse getting electricity in the year covered by to ensure a better balance between the from 43.5% of income per capita in 2006 the report. interests of debtors and creditors and to to 18.6% in 2012. facilitate the recovery of companies expe- CONFRONTING THE CRISIS riencing ﬁnancial problems. The changes Even after Latvia’s accession to the WITH REFORMS included allowing easier access to European Union, some regulatory re- insolvency and restructuring procedures, The global ﬁnancial crisis brought Latvia’s forms were still driven by the integration introducing faster procedures for selling a strong economic growth to a halt. Much of process. One was the adoption of an debtor’s assets and implementing stricter the growth had been driven by increased electronic customs system, triggered by domestic demand enabled by substantial qualiﬁcation standards for insolvency the implementation of EU regulations in inﬂows of foreign capital, and when the administrators. In 2009 further amend- 2009. Entry and exit declaration forms capital inﬂows ceased, the economy ments to the insolvency law introduced can now be submitted electronically, went into a deep recession starting in a mechanism for settling insolvencies out and a requirement to submit customs 2008.13 Latvia responded by undertaking of court to ease pressure on the judiciary. information in advance allows the system signiﬁcant structural reforms, including As a result of these reforms, the recovery to perform computerized risk analysis reductions in public spending and wage rate for creditors rose from 32 cents on before goods are presented to customs. moderation in the public sector. The the dollar to 56 between 2010 and 2011, public broadly supported the main thrust leading to the biggest improvement in the Continuing its improvements in tax ad- ease of resolving insolvency worldwide of the authorities’ response to the crisis, ministration, Latvia introduced a process according to Doing Business 2012. and election results in October 2010 en- for electronic submission and acceptance dorsed the government’s reform efforts.14 of tax declarations in 2005 and 2006. Another focus was expanding the credit This reduced the number of tax payments Despite the economic turmoil associ- information system. In 2008 the Bank as measured by Doing Business from 29 a ated with the ﬁnancial crisis—or perhaps of Latvia’s registry of debtors was trans- year to 7 in 2006. because of it—Latvia also implemented formed into a full-ﬂedged credit registry.

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LATVIA: MAINTAINING A REFORM STATE OF MIND 35FIGURE 4.3 More and better credit information in Latvia endorsed by the business community and Borrowers covered by credit registries Depth of credit information index the population. (% of adults) (0–6) 70 6 That economic integration can provide 60 useful incentives is not a new lesson: 5 Doing Business 2012 identiﬁed a similar 50 4 association between successful reforms 40 3 in FYR Macedonia and its preparations 30 ahead of eventual EU entry. But the case 2 20 of Latvia provides another example of 10 1 how economic integration can serve as 0 0 a powerful stimulus for economic and in- 2004 2005 2006 2007 2008 2009 2010 2011 2012 stitutional reforms—and how integration Depth of credit information index Borrowers covered by credit registries and reform together can create a virtuous circle of development.Source: Doing Business database. The case of Latvia also shows that localIt now collects both positive and negative EU requirements of committing to circumstances matter as well. Latvia hasinformation on borrowers, borrower guar- democratic institutions and processes, beneﬁted from a high-quality technocrat-antors and their obligations. The registry strengthening the institutional underpin- ic bureaucracy through which pro-reformis also able to record more precise infor- nings of a free market and harmonizing civil servants were able to provide com-mation, such as the type of settlement of laws with EU legislation provided an ac- petent support to the reform process overthe borrower’s obligations and the date on tionable roadmap. Results are reﬂected in time. The presence of a stable cadre ofwhich settlement of a delayed payment is Latvia’s improvement on the Worldwide well-qualiﬁed civil servants, maintainedregistered. And the registry expanded its Governance Indicators between 2000 through changes in political leadership,coverage from 3.5% of adults in 2008 to and 2005, including on the Regulatory almost certainly aided the development63.8% in 2012 (ﬁgure 4.3). Quality Index.16 In addition, the potential and implementation of what has been economic beneﬁts of joining the European a largely successful reform agenda. InWith the goal of increasing investors’ Union created strong public support for addition, the ability to establish an ongo-conﬁdence in the market, Latvia also the reform agenda. This combination of ing dialogue between the governmentintroduced more robust corporate EU requirements and potential economic and the business community may havegovernance measures. The government beneﬁts made it possible to sustain the helped build and sustain the broad politi-amended the company law to harmonize implementation of both broad structural cal consensus for the reform process.with the EU acquis communautaire, includ- reforms and speciﬁc business regulationing by improving disclosure mechanisms Whatever the combination of causes, reforms.and increasing transparency.15 And in Latvia has maintained a state of mind2010 the Riga Stock Exchange issued Similar support for economic reform after focused on reform of the business envi-corporate governance principles and the crisis can be linked to a desire for fur- ronment and the broader economy. Doingrecommendations related to disclosure ther integration with the European Union, Business measures just one component ofrequirements, remuneration policy and including as a future full member of the the reforms that Latvia has implemented.conﬂicts of interest, further strengthen- euro zone. Devaluation of the Latvian But the results are clear: in the areasing corporate governance rules for listed currency against the euro was a policy tracked by Doing Business indicators, thecompanies. option for mitigating the effects of the quality of the business environment has crisis, and it might arguably have implied improved substantially over the pastWHAT ARE THE LESSONS? lower short-term economic costs than decade and a half.Latvia has sustained a clear commitment cuts in public spending. But the govern-to business regulation reform over more ment opted instead to intensify the pace CONCLUSIONthan a decade, under changing political of structural reforms; it viewed maintain- Latvia’s reform process is likely to con-leadership and through economic booms ing the currency peg less in terms of tinue. The authorities have signaled theirand downturns. What factors have en- the purely macroeconomic effects and determination to continue to implementabled this impressive commitment? more as part of its long-term strategy for cautious macroeconomic policies that strengthening links with the European will support continued investments inOne is the structural incentive pro- Union, particularly the members of the infrastructure, education and training,vided by economic integration. The euro zone.17 This approach was broadly seen as key elements of an ambitious

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36 DOING BUSINESS 2013 competitiveness agenda.18 Further busi- at purchasing power parity. 12. Liepina, Coolidge and Grava 2008. ness regulatory reforms are planned 2. Export growth data are from the World 13. Latvia, Ministry of Economics 2011. as well, as part of Latvia’s program to Bank’s World Development Indicators 14. EBRD 2011. database (http://data.worldbank.org/). implement the “Europe 2020” strategy.19 15. EBRD 2011. Poverty data are based on the poverty The objectives include, among others, the headcount ratio at purchasing power 16. The Regulatory Quality Index captures reduction of administrative barriers and parity and are from PovcalNet, the online perceptions of the government’s abil- the strengthening of access to ﬁnance tool for poverty measurement developed ity to formulate and implement sound by the World Bank’s Development policies and regulations that permit and as well as support for access to external promote private sector development. Research Group (http://iresearch markets and encouragement of greater It ranges from -2.5 (weak government .worldbank.org/PovcalNet). inﬂows of foreign direct investment to performance) to 2.5 (strong government 3. See, for example, Coolidge, Grava and export-oriented sectors. These reforms performance). Latvia’s score rose from Putnina (2003). should enable Latvia to fully overcome 0.74 in 2000 to 0.94 in 2005, then rose 4. Liepina, Coolidge and Grava 2008. to 0.98 in 2010. the economic effects of the ﬁnancial crisis 5. Liepina, Coolidge and Grava 2008. 17. See, for example, Åslund (2009). and allow it to continue on its path toward 6. World Bank 2001. Another consideration in the govern- successful long-term development. 7. Coolidge, Grava and Putnina 2003. ment’s policy choice may have been a desire to protect the signiﬁcant share 8. World Bank 2007. of the population with debt in euros 9. Liepina, Coolidge and Grava 2008. and other foreign currencies from the NOTES 10. World Bank, World Development consequences of a devaluation. This case study was written by Caroline Indicators database, http://data 18. EBRD 2011. Frontigny and Betina Tirelli Hennig. .worldbank.org/. 1. World Bank, World Development 19. Latvia, Ministry of Economics 2011. 11. World Bank, World Development Indicators database, http://data Indicators database, http://data .worldbank.org/. The income measure is .worldbank.org/. gross national income (GNI) per capita

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37Rwanda: fosteringprosperity by promotingentrepreneurshipEmerging from a decade marked by civil Building on a 2-year consultation process,  Rwanda’s commitment to privatewar and political instability, Rwanda the government designed a long-term sector development has facilitatedbegan a comprehensive and ambitious development strategy, Rwanda Vision growth in exports, domesticcampaign in 2000 to rebuild, foster 2020, aimed at transforming Rwanda investment and foreign directnational reconciliation and drastically into a middle-income economy by investment inﬂows—and thereduce poverty. The government’s raising income per capita from $290 to implementation of effective ﬁscalagenda gave priority to health, education, $900 before 2020.2 Introduced in 2000, policies supported by structuralinfrastructure, and private and ﬁnancial the strategy recognized and sought to and institutional reforms.sector development, showing a overcome Rwanda’s multiple development  Starting in 2000, Rwandacommitment to improving citizens’ living challenges—including past civil war, developed a strong institutionalconditions and building a solid foundation poor governance, weak infrastructure, pipeline for designing andfor reconciliation. underdeveloped ﬁnancial and private implementing business regulation sectors, unemployment, overwhelming reforms.Starting early on in the reform campaign, public debt, a poorly developed educationRwanda has implemented many system, HIV and the rapid growth of a  Since 2004 Rwanda hasbusiness regulation reforms. These have population expected to reach 13 million by substantially improved access totransformed the life of the private sector 2020. credit, streamlined proceduresand made it noticeably easier to do for starting a business, reducedbusiness. While challenges remain, the In 2001 the World Bank set up the the time to register property,country has achieved much success in Competitiveness and Enterprise Develop- simpliﬁed cross-border trade andits reform agenda since the early 2000s. ment Project, designed to help the made courts more accessible forThis success stems from many factors, government establish an environment resolving commercial disputes.and Rwanda’s experience may provide conducive to private sector growth and  Rwanda is among more than 35useful lessons for other nations seeking the emergence of a more competitive economies where the executiveto improve their business climate, investment climate. The project focused on branch has made private sectorparticularly for those coming out of developing and updating the commercial development a priority byconﬂict. law and supporting the government’s establishing institutions whose privatization program through technical main purpose is to design andDESIGNING A STRATEGY assistance, capacity building and advice implement business regulationBetween 2005 and 2011 Rwanda’s real on bank restructuring. This program reforms.GDP per capita grew by 4.5% a year, contributed to an overhaul of thereﬂecting a sustained expansion of country’s ﬁnancial sector that led to theexports and domestic investment, with recapitalization of banks, the establishmentinﬂows of foreign direct investment also of an insurance market and the introductionincreasing substantially.1 In addition, of microﬁnance lenders. In addition,the government strengthened the the Competitiveness and Enterprisefoundations of macroeconomic stability Development Project collaborated with theby implementing cautious ﬁscal policies World Bank’s Rwanda Investment Climatesupported by a number of structural and Reform Program to develop a robust reforminstitutional reforms. Underpinning this agenda. The project helped establishpolicy stance was a strong and sustained the Doing Business Unit, the institutioncommitment by national authorities to responsible for spearheading Rwanda’sprivate sector development. reform initiatives, while the investment

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38 DOING BUSINESS 2013 climate reform program provided technical other economies—including economies The Doing Business Unit identiﬁes reform assistance and expertise to support the that have made some of the biggest opportunities; the technical task force implementation of planned legal, regulatory improvements in the ease of doing and the steering committee approve the and institutional reforms. business, such as Burundi, Colombia reform proposals. The annual plan for and Georgia.6 The approach has proved regulatory reforms is then communicated Rwanda’s 2007 Economic Development effective in triggering reforms. In Rwanda to the cabinet. The steering committee and Poverty Reduction Strategy, like its and the technical task force commit it helped put investment climate reforms Vision 2020, emphasized private sector to the new priorities that are agreed at the top of the economic policy agenda development as the key to creating on at the national leadership’s annual for promoting private sector development jobs, bringing peace, generating wealth retreats.7 The Doing Business Unit and helped consolidate and unify the and ultimately eliminating poverty.3 In monitors implementation and reports multiple reform efforts. addition, aware of its scarce natural to the steering committee and to resources and landlocked location, Since reforms to the investment climate the prime minister, who is ultimately Rwanda has focused on business require changes across many areas responsible for ensuring the execution regulation reform to attract foreign of government, the Doing Business of goals.8 Besides reporting directly to investment. Steering Committee, bringing together the Rwanda Development Board, the unit representatives from different ministries, also periodically informs the head of the Dubbed “Africa’s new Singapore” by was created in early 2009 to lead the Strategy and Policy Unit in the Office of The Economist for its positive economic reform efforts at the cabinet level. While the President about reform progress. reforms,4 Rwanda has been effectively other countries have created similar learning from the success stories of institutions to promote reform, Rwanda Far from being rigid, this structure economies like Singapore since the early has made effective use of the steering has been further improved by the 2000s. And in 2007 it started using the committee in implementing successful involvement of other stakeholders. Ahead Doing Business report as a tool to identify regulatory reforms (as detailed in the of the promulgation of major pieces of and learn from good practices in business following section). legislation, the Rwanda Development regulation and to monitor improvement. Board has worked closely with the Several elements of a successful reform Below the steering committee is a parliament and the judiciary, both of program were present, including political technical task force made up of 6 working which have helped in meeting targets will and commitment at the highest groups focusing on business entry, and deadlines. Civil society, development level and a broadly appropriate set of licensing reform, legislative changes, partners and institutions such as the macroeconomic policies that created taxes and trade logistics, construction Presidential Advisory Council have also room in the budget to invest in reforms permits and property registration. One provided crucial input in shaping the and gained strong support from the donor key to the working groups’ effectiveness reform agenda.9 community. has been their inclusion of private sector representatives. This has helped LAUNCHING REGULATORY BUILDING AN EFFECTIVE ensure private sector buy-in and allowed REFORMS REFORM PIPELINE participants to share their experiences Even as the internal organization was Government responsibility for improving during discussions about reform design. evolving, the government was enacting the investment climate in Rwanda and reforms: since 2005 Rwanda has To ensure success, the organizational implemented 26 business regulation driving through the reforms has shifted structure still needed something to reforms as recorded by Doing Business. over time. The responsibility was initially bring all the pieces together. For this assigned to the Rwanda Investment purpose the Doing Business Unit was Improving access to credit Promotion Agency. In August 2008 this created. A small, full-time team, this unit A series of changes improved conditions agency was joined by 7 others to create links the working groups to the steering for getting credit. In 2005 the public the Rwanda Development Board.5 committee, coordinates with donors credit registry expanded its database of The board’s creation marked not only providing technical support, manages ﬁnancial institutions and improved the a change in name and gains in size, development funding to ensure proper content of its credit reporting system. In resources and efficiency but also a use and promotes efforts to improve 2009 a new secured transactions law fundamental increase in political will and the investment climate. It also advises was introduced, allowing a wider range support. The president of Rwanda made agencies, explains the reforms to the of assets to be used as collateral and business regulation reform a priority, private sector and monitors progress permitting out-of-court enforcement as did the leaders of more than 35 through internal indicators. proceedings.10

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RWANDA: FOSTERING PROSPERITY BY PROMOTING ENTREPRENEURSHIP 39In 2010 the legislature passed a law FIGURE 5.1 Rwanda streamlined the procedures for starting a businessregulating the distribution of information Time (days)from credit bureaus. This led to the 18creation of the country’s ﬁrst private Rwanda eliminated 7 procedurescredit bureau, which provides wider 15 and cut the time by 15 dayscoverage than the public registry because 12it includes information from utilities. Inaddition, the public registry expanded 9coverage to loans of all sizes. In December 62011 the public registry stopped issuingcredit reports, and now only the private 3bureau shares credit information. The 0 1 2 3 4 5 6 7 8 9public registry still collects informationfrom regulated ﬁnancial institutions but Proceduresonly for supervisory purposes. 2004 2012 Source: Doing Business database.Streamlining regulatoryprocessesOther changes streamlined regulatory The administrative reorganization and extended operating hours for borderprocesses. In 2006 the introduction of the statutory time limits reduced the posts and implemented an electronichundreds of new notaries made starting time required to transfer property by 346 data interchange system and risk-baseda business faster. Before, only 1 notary days—from more than a year in 2004 to inspections. And in 2010 it streamlinedhad been available countrywide, and the less than a month (ﬁgure 5.2). And the trade documentation requirements andhigh volume of requests meant a long changes in the transfer fees reduced the improved border cooperation.wait for entrepreneurs wanting to register cost from 10.3% of the property value toa new business. After an overhaul of the 5.6%.11 Results are clear. In 2006 exportingcompany law in 2009, entrepreneurs goods in Rwanda required 14 documentsno longer needed to use the services of Changes over several years made and 60 days (ﬁgure 5.3). Today it takesa notary; they could use standard forms trading across borders faster. In 2005 only 8 documents and 29 days. The storyinstead. An online system for publishing Rwanda made it possible to submit is similar for importing.the registration notice replaced customs declarations electronically. In 2007 the customs authority introduced Strengthening laws andrequirements for physical publication. more acceptance points for customs the judiciaryAnd a new one-stop shop streamlinedbusiness registration by reducing the declarations, reducing the waiting time The new company law adopted in 2009number of interactions required from 9 to to submit them. In 2008 the government introduced several concepts into Rwanda’s2 (ﬁgure 5.1). The time required to starta business fell from 18 days to 3, and the FIGURE 5.2 Rwanda cut the time for property transfers by almost a yearcost from 235% of income per capita to4%. Time to register property (days) 400Rwanda also made it easier to transfer Rwanda reduced the timeproperty. In 2008 it eliminated mortgage required to complete procedures 300 from 371 days to 25registration fees and shifted from a6% transfer tax to a ﬂat rate of 20,000Rwandan francs (about $33). In 2010 the 200government decentralized the Office ofthe Registrar and Land Titles and created 1005 branches throughout the country,purging the backlog of cases in Kigali. It 0 1 2 3 4 5also introduced strict time limits for some Proceduresprocedures. One was the issuance of taxclearance certiﬁcates, which had been 2004 2012the lengthiest part of the process. Source: Doing Business database.

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40 DOING BUSINESS 2013 FIGURE 5.3 Big reduction in time and documents to trade across borders in Rwanda (ﬁnanced by the Competitiveness and Time and documents to export Enterprise Development Project) and the Time (days) Documents (number) Institute for Legal Practice are training 80 14 judges, legal officers and lawyers to work 70 12 in a mixed legal system, where the civil 60 10 law tradition dominates but common law 50 and customary law tendencies are also 8 evident.15 40 6 30 With the aim of increasing efficiency 4 in resolving corporate insolvencies, the 20 10 2 government enacted a new insolvency law 0 0 in 2009. But resolving insolvency remains 2006 2007 2008 2009 2010 2011 2012 the one area among all those included in the ease of doing business index in Time and documents to import which Rwanda still has great room for Time (days) Documents (number) 20 improvement. Achieving widespread use 100 of the law in insolvency cases has been 80 15 among the greatest regulatory reform challenges in this area.16 60 10 40 SEEING MEASURABLE RESULTS 5 The ultimate goal of the reform program 20 is a private sector that promotes 0 0 economic growth and job creation.17 And 2006 2007 2008 2009 2010 2011 2012 the program is achieving measurable Time progress toward this goal. Inland transport Customs clearance Documents Terminal handling Document preparation After Rwanda simpliﬁed formalities for Source: Doing Business database. business registration in 2006, 77% more ﬁrms registered in the following year.18 In corporate legal system for the ﬁrst time: laws proved crucial for the approval of 2008 more than 3,000 ﬁrms registered, minority shareholder rights, regulation of important legal reforms. The government up from an average of 700 in previous years. In 2009 the number rose to 6,905. conﬂicts of interest, extensive corporate further enhanced the court system in And in 2010 the government managed to disclosure and directors’ duties. The new 2008 by creating lower commercial register 18,447 new businesses—nearly law introduced rules requiring approval courts. achieving its goal of registering 20,000 by the board of directors for related-party Consistent with its emphasis on bringing that year.19 The jump in registration transactions representing less than 5% of in the skills and expertise needed numbers cannot be attributed solely to the company’s assets and by shareholders to ensure the success of the reform the simpliﬁcation of the start-up process; for those representing more than 5%. The process, the government also hired non- the business registration reforms were law strengthened the director liability Rwandan expatriate judges: 2 Mauritian part of a wider government agenda regime for breach of ﬁduciary duties and judges to help local judges run the new to promote private sector growth and for related-party transactions that harm commercial courts during the ﬁrst 3 entrepreneurship in Rwanda. Even so, the the company. And it increased corporate years of operation.13 In addition, the increase points to a positive trend. transparency by improving disclosure requirements and minority shareholders’ government has provided incentives Good results are also showing up in access to corporate information. for Western-educated members of the the area of contract enforcement: the diaspora to repatriate and has promoted commercial courts started operating in In 2005 the government made contract an exchange of skills by opening the job Kigali in May 2008 and had fully cleared enforcement more of a reality by market to immigrants from neighboring the case backlog by the end of 2009.20 establishing more commercial courts12 countries, including Burundi, Kenya, and creating the Business Law Reform Tanzania and Uganda.14 Moreover, Rwanda’s consistent reforms to make Cell, whose review of 14 commercial the Capacity Strengthening Program trade easier improved the productivity

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RWANDA: FOSTERING PROSPERITY BY PROMOTING ENTREPRENEURSHIP 41of customs officials, who increased the lawyers and judges—to ensure program to support the Rwanda Revenuenumber of documents they cleared proper administration of the reforms. Authority is considered a success, enabling the agency both to improveannually by 39% between 2006 and Recognizing the beneﬁts of a diverse its tax collection rate and to simplify its2009. And according to the Ministry of knowledge base, Rwanda has also interactions with businesses.Trade and Industry, Rwanda’s exports imported technical expertise from other 10. Legal changes often require onlyrose from $147 million in 2006 to $193 countries, to replicate good practices and modest investments. For the securedmillion in 2009. build capacity. And the government has transactions law, for example, Rwanda involved the private sector in the reform invested $55,320 (excluding technicalRwanda recently adjusted some of the assistance from donors) in the validation process and maintained an open line of and translation of the new law as well astargets set in Vision 2020. Most notably, communication to keep entrepreneurs, in the legislative process.it raised the income per capita target from civil society and other stakeholders 11. World Bank 2010a.$900 to $3,500. This brings the target apprised of developments. 12. World Bank 2006.into line with levels in middle-income 13. Hertveldt 2008.economies today and reﬂects Rwanda’s All these efforts are showing results in 14. “Africa’s New Singapore?”recent growth, which increased income Rwanda’s regulatory performance. And The Economist, February 25, 2012,per capita to around $570 in 2011.21 Rwanda’s dedication to private sector http://www.economist.com/. development, in triggering positive legal 15. The Institute for Legal Practice wasCONCLUSION reforms, has contributed substantially to established by an organic law in 2006 its overarching goal of promoting national and started to operate in May 2008.Every country faces different development reconciliation and prosperity. 16. “Rwanda: Country Struggles onchallenges. But Rwanda’s ambitious Insolvency Law,” East African Businessand complex reform program may offer Week, May 13, 2012, http://allafricalessons for others seeking to reform .com/. NOTESthrough private sector development. 17. Edmund Kagire, “New Reforms Set Up This case study was written by Moussa to Boost Doing Business,” New Times Traoré, Adrian Gonzalez, César ChaparroOne key to its achievements has been (Kigali), April 18, 2010. Yedro, Jean Michel Lobet and Jonathanthe strong commitment to reform shown Bailey. 18. World Bank 2010a.by Rwanda’s leaders and its citizens. The 1. World Bank, World Development 19. Frank Kanyesigye, “Rwandagovernment has established structures Indicators database, http://data Development Board Targets to Register .worldbank.org/. 20,000 New Businesses,” New Timesfor building a foundation for private (Kigali), May 14, 2010.sector development and coordinating 2. Rwanda, Ministry of Finance and Economic Planning 2000. 20. Interview by Business Times (Kigali) withgovernment-wide reform efforts. And Benoit Gatete, vice president of the 3. Rwanda, Ministry of Finance andit has created a well-deﬁned, long-term commercial high court, January 12, 2010, Economic Planning 2007.reform strategy that informs all of the http://allafrica.com/. 4. “Africa’s New Singapore?”country’s short-term development goals. 21. “Government to Adjust Vision 2020,” The Economist, February 25, 2012, New Times (Kigali), February 25, 2010; http://www.economist.com/.The government entities involved in World Bank, World Development 5. The 7 agencies were Tourism and Indicators database, http://datathe process have had clearly deﬁned Conservation, the Registrar General’s .worldbank.org/.roles and responsibilities, and they Office, the Privatization Unit, Human andhave respected the goals set in initial Institutional Development, the Centerimplementation strategy documents. The for the Support to Small and Medium- Sized Enterprises (CAPMER), the ITDoing Business Unit has played a pivotal Agency and the National Environmentrole not only in ensuring coordination Management Authority.within the government and between 6. See box 2.2 in the chapter “About Doingthe government and donors but also Business” for a list of economies usingin coordinating development funding this approach.initiatives so as to avoid duplication. 7. These retreats, which gather about 300 top members of the administration, haveThe government has worked to meet the included Doing Business reforms on the agenda since 2007.needs of entrepreneurs by streamlining 8. Presentation by Emmanuel Hategeka,regulatory processes involved in starting, permanent secretary, Ministry of Tradeoperating and closing a business. Beyond and Industry, Kigali, March 16, 2011;undertaking legal and administrative Karim 2011.reforms, the government has invested 9. In particular, the U.K. Department forin training for professionals—including International Development’s multiyear

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42 APEC: sharing goals and experience  Asia-Paciﬁc Economic Cooperation Many factors can drive reforms in liberalization, business facilitation, and (APEC), a regional forum of 21 an economy’s business regulatory economic and technical cooperation.1 member economies, has as its environment—from domestic factors primary goal to ensure sustainable such as ﬁnancial crises to international Meeting in Bogor, Indonesia, in 1994, economic growth and prosperity ones such as binding agreements in the leaders of APEC members committed to through voluntary cooperation. World Trade Organization (WTO). For achieving free and open trade and invest-  A key focus is promoting regulatory economies in the Asia-Paciﬁc region, re- ment by 2010 for developed economy reforms, and in 2009 the APEC gional factors play a part, including com- members and by 2020 for developing Ease of Doing Business Action mitments made in Asia-Paciﬁc Economic economy members—targets that be- Plan was launched as a way to set Cooperation (APEC). Improving the came known as the Bogor Goals. Today collective targets and measure region’s business regulatory environment APEC’s 21 members account for about progress. is a focus of APEC, and member econo- 54% of world GDP and about 44% of mies have pledged to carry out regulatory world trade.2 APEC members’ total trade  Using 5 Doing Business indicator reforms both collectively and unilaterally. grew by 10% a year on average between sets, the action plan targets an 1989 and 2010. This rate, though impres- APEC-wide aspirational goal of To help monitor and assess members’ sive, only slightly exceeded the world’s making it 25% cheaper, faster and progress toward these commitments, overall trade growth rate of 9%.3 On the easier to do business by 2015, APEC sets measurable targets with other hand, APEC members reduced with an interim target of 5% speciﬁc timelines. While these targets their average applied tariff from 16.9% to improvement by 2011. are set at the regional level, APEC also 5.8% over this period.4  Between 2009 and 2012 APEC encourages members to draft plans for members improved their their own economy that will aid in achiev- As tariffs declined in APEC members, performance on the 5 indicator ing APEC-wide targets. One set of targets attention shifted to addressing the sets by 11.5% on average. But much that APEC has chosen for this purpose is structural and regulatory obstacles that variation remains among APEC based on Doing Business indicators. inhibit cross-border trade and invest- members in the ease of doing ment by removing behind-the-border business and in the rate of progress APEC also encourages capacity building barriers to doing business.5 At the same being made. activities among members in support of time, economic integration between its goals. Toward the goal of improving the  Consistent with APEC’s view APEC members highlighted difficult region’s regulatory environment, APEC of capacity building as central new challenges—such as how to ensure has selected “champion economies” to to enhancing cooperation and that growth and economic integration provide capacity building assistance to accelerating progress, the are sustainable and shared by all APEC other members. action plan identiﬁes “champion members in a constantly changing eco- economies” to share information nomic environment. A HISTORY OF COLLECTIVE and experience and to assist GOAL SETTING To address these challenges, in 2010 other members through tailored diagnostic studies. Established in 1989, APEC is a forum APEC leaders embraced the APEC for supporting economic growth, co- Growth Strategy, which takes into con- operation, trade and investment in the sideration new global realities—including Asia-Paciﬁc region. APEC operates on energy and environmental constraints, a voluntary and consensual basis, with human security concerns and disparities activities and work programs centered in opportunity across and within econo- on 3 main pillars: trade and investment mies. APEC leaders also endorsed the

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APEC: SHARING GOALS AND EXPERIENCE 43FIGURE 6.1 Milestones in the APEC Ease of Doing Business Action Plan Interim target of 5% 2012 APEC Economic Policy Report focusing APEC-wide target of Action plan launched improvement on members’ work in the 5 priority areas 25% improvement 2009 2010 2011 2012 2013 2014 2015 Phase 1 (2009–11) Phase 2 (2012–15) Champion economies share experience with Champion economies provide diagnostics and facilitate capacity building for successful reforms and systems members committed to reformSource: Based on information from APEC Policy Support Unit.New Strategy for Structural Reform, a The action plan has highlighted the capita to 6.4%). Economies in the rest ofbroad work program that calls on each importance of measuring results since the world made smaller improvements onmember economy to undertake demon- the beginning. And the APEC Secretariat average on 3 of these indicators, reducingstrable and signiﬁcant structural reform, has agreed to regularly assess progress the number of procedures by 8.2%, theconsistent with the objective of achieving toward the targets set (ﬁgure 6.1).7 time by 17.7% and the paid-in minimumstrong, inclusive and balanced growth. capital requirement by 32.4%. But theyRecognizing the importance of capacity Encouraging early results improved more than APEC members onbuilding to assist members in undertak- Early results are encouraging. Among the the cost to start a business, reducing it bying structural reform, APEC is supporting 5 areas covered by the action plan, APEC 29.1%.workshops, peer-to-peer events and members made the biggest improvementsknowledge sharing tools in such areas in starting a business between 2009 and Overall, APEC members improved theas regulatory reform and public sector 2012. On average, they reduced the num- ease of starting a business by 23.4% ongovernance. ber of procedures to start a business by average, while non-APEC economies 19.3% (from 7.9 to 6.4), the time by 22.5% improved it by 21.9%. Beyond the differ- (from 28.1 days to 21.8), the cost by 16.5% ences with the rest of the world, whatAN ACTION PLAN FOR MAKING (from 8.8% of income per capita to 7.4%) makes these improvements by APECIT EASIER TO DO BUSINESS and the paid-in minimum capital require- particularly impressive is that in 2009Another APEC initiative focuses more ment by 35.3% (from 9.8% of income per the region already performed better onclosely on improving the business regula-tory environment. To provide a pragmatic FIGURE 6.2 APEC members have advanced furthest toward the frontier in regulatory practice forway of addressing priorities, senior gov- starting a businessernment officials of APEC members Average distance to frontieragreed to put in place the APEC Ease of (percentage points)Doing Business Action Plan in 2009.6 The 100action plan uses Doing Business indicators 2012to set collective targets and encourage 2009measurable progress in regulatory re-form. The overall goal is to make it 25%cheaper, faster and easier to do business 80in the region by 2015, with an interimtarget of 5% improvement by 2011.The action plan focuses on 5 priorityareas. These were identiﬁed through a 60survey asking APEC members to rank by Starting Dealing with Getting Trading Enforcing Average a business construction credit across borders contracts for all 5priority the 11 areas measured by Doing permits indicator setsBusiness. The 5 priority areas are startinga business, getting credit, trading across Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005. The measure is normalized to range between 0 and 100, with 100borders, enforcing contracts and dealing representing the best performance (the frontier).with construction permits. Source: Doing Business database.

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44 DOING BUSINESS 2013 average on the Doing Business indicators FIGURE 6.3 APEC members’ performance on Doing Business indicators varies widely for starting a business than on those for Average ranking the other 4 areas (ﬁgure 6.2). 7 1 10 12 14 21 27 Over the same period APEC members 16 26 22 32 29 also improved their performance on 41 the Doing Business indicators for dealing 65 75 67 74 with construction permits (by 15.8% 95 94 on average, compared with 13.9% in non-APEC economies) and for getting credit (by 16.1%, compared with 23.9%). Their performance on the trading across 185 borders indicators improved only slightly Ease of Starting Dealing with Getting Trading Enforcing doing business a business construction credit across borders contracts (by 2.3%, compared with a decline of permits 0.7% in non-APEC economies), while High-income members Middle-income members Champion economies that on the enforcing contracts indicators Note: Champion economies as deﬁned by the APEC Ease of Doing Business Action Plan are Hong Kong SAR, China; Japan; remained nearly unchanged (improving Korea; New Zealand; Singapore; and the United States. by 0.1%, compared with no improvement Source: Doing Business database. in non-APEC economies). Across all 5 priority areas, APEC members improved years China implemented 16 reforms in 8 registry in 2006, a new law regulating the their performance on the Doing Business areas of business regulation measured by bankruptcy of private enterprises in 2007 indicators by 11.5% on average. Doing Business. These changes included a and a new corporate income tax law in 2008. Wide discrepancies between new company law in 2005, a new credit APEC members Despite the good start, the ease of do- FIGURE 6.4 Which APEC economies have advanced the most in narrowing the gap ing business still varies sharply among with the frontier? APEC members. Consider the process for starting a business. In New Zealand Distance to frontier (percentage points) it requires only 1 procedure and 1 day 100 and costs 0.4% of income per capita; in the Philippines it takes 16 procedures 2012 and 36 days and costs 18.1% of income 90 2005 per capita. Similarly, while dealing with 80 construction permits in Singapore takes 26 days and costs 16.7% of income per capita, in Russia it takes 344 days and 70 in Mexico it costs 322.7% of income per capita. 60 Indeed, APEC’s high-income members 50 perform substantially better in all 5 priority areas as measured by Doing Business than 40 its middle-income members do. And on Korea, Rep. Singapore New Zealand United States Hong Kong SAR, China Canada Australia Japan Malaysia Taiwan, China Thailand Chile Mexico Peru Vietnam Brunei Darussalama Papua New Guinea Russian Federation Philippines Indonesia China the aggregate ease of doing business they rank 59 places higher on average than middle-income members (ﬁgure 6.3). Moreover, while APEC as a whole is mak- ing improvements, its members are pro- Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any gressing at very different rates. Among economy on each Doing Business indicator since 2005. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). APEC members, China has made the a. Because Brunei Darussalam was ﬁrst included in the aggregate ranking in Doing Business 2008 (2007), its distance to most progress toward the frontier in reg- frontier in 2012 is compared with that in 2007. ulatory practice (ﬁgure 6.4). In the past 8 Source: Doing Business database.

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APEC: SHARING GOALS AND EXPERIENCE 45What does all this mean for APEC’s with those for issuing the trade license again play a role, by assisting otherprospects of meeting its ambitious goal? and registering the business at the one- member economies in implementingAPEC’s 2011 interim report on the initia- stop shop.11 regulatory reforms.tive delivered a clear message: if APECis to improve the ease of doing business In Thailand an assessment by U.S. CONCLUSIONby 25% by 2015, it must intensify and experts in July 2011 went beyond the APEC has focused on institutional,accelerate its efforts, including through aspects of business start-up measured regulatory and policy reforms to encour-capacity building programs.8 by Doing Business, resulting in a compre- age efficient functioning of markets and hensive report and policy recommenda- reduce barriers to regional trade sinceSharing of information tions. The study found that Thailand, the early 2000s. The APEC Ease of Doingand experience by creating a customer-friendly and Business Action Plan represents only oneWhile APEC members advocate building demand-driven system for business set of targets that APEC uses to encour-capacity and sharing experience as a registration, had made it substantially age regulatory reforms. But it provides away of enhancing cooperation in a range easier to start a business as measured useful example of the application of Doingof areas, such efforts feature strongly by Doing Business. It also recommended Business indicators in setting concretein the initiative to improve the ease of that the government broaden the focus collective targets and in monitoring anddoing business. The action plan identi- of its efforts to improve business regis- assessing progress.ﬁes champion economies with strong tration beyond the aspects captured byperformance in each of the 5 priority the Doing Business indicators.12 The framework of capacity buildingareas to lead capacity building activities activities created through the action Korea, a champion for the topic of en- plan has proved useful in promotingin those areas. forcing contracts, is assisting Indonesia exchanges between member economies.In phase 1 (2009–11) the focus was on and Peru in developing customized Here, the diversity of APEC’s 21 memberbuilding awareness through seminars solutions. A Korean delegation visited economies—with different incomeand workshops to share information and Indonesia in January 2011 and Peru in levels and located in different geographicexperience in each of the 5 priority areas. July 2011 to review the systems and pro- regions—has contributed to success.The APEC Secretariat and the champion cedures in place for enforcing contracts. By sharing experience and providing as-economies organized 6 topic-speciﬁc In addition, international seminars sistance to other APEC members, thoseseminars and workshops.9 were held in the 2 countries on ways to identiﬁed as champions in each of the improve such systems. Together, these priority areas can lift the APEC-wideIn phase 2 (2012–15) the focus is on attracted more than 100 participants, performance.developing more customized capacity including judges, attorneys, professorsbuilding programs for economies seeking and government officials. In October Other regional bodies can learn from thisspeciﬁc assistance in their regulatory re- 2011 the Korean government brought model of capacity building. Doing Businessform efforts. In these programs technical together legal experts and high-level 2012 found that in many economies theexperts conduct diagnostic studies of an policy makers from Indonesia and Peru degree to which regulations and institu-economy’s priority area and develop prac- to discuss the future of both countries’ tions are business-friendly varies fairlytical recommendations for improvement. systems for enforcing contracts.13 widely across different areas of regula-While designed to directly beneﬁt the tion.15 Regional bodies can take advantageparticipating economies, the programs Japan, a champion for the topic of getting of these differences, encouraging eachalso help move APEC closer to its collec- credit, is preparing a study on ﬁnancing member economy to capitalize on itstive goal of making it 25% cheaper, faster for small and medium-size enterprises strengths by providing assistance in areasand easier to do business by 2015.10 in Thailand. Singapore is preparing a di- of strong performance to members with agnostic study on trading across borders weaker performance.Several programs focus on the area of for Peru and planning similar ones forstarting a business. One is in Indonesia, Mexico and Vietnam. Singapore is also APEC appears poised to continue its ca-where an expert from New Zealand and planning diagnostic studies on dealing pacity building efforts, with talks alreadyanother from the United States made a with construction permits for Indonesia, under way on a new phase related tojoint visit in July 2010 to collect data and Peru and Thailand.14 policy implementation. Because APECinformation. The diagnostic report, issued is a voluntary and nonbinding forum,in August 2010, contains 8 concrete rec- The next phase of capacity building sustained engagement by top govern-ommendations. Among them is a recom- activities will focus on converting the ment officials from every APEC membermendation to consolidate the procedure diagnostic studies’ recommendations is needed to accelerate progress towardfor labor and social insurance registration into actions. Champion economies will the goals it has set for itself.

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46 DOING BUSINESS 2013 and Vietnam in 1998—bringing the 9. Based on information provided by the NOTES current membership to 21. APEC Policy Support Unit as of June This case study was written by Mikiko Imai 3. WTO Statistics Database, Trade Proﬁle, 2012. Ollison, Paula Garcia Serna and Anastasia Shegay. http://stat.wto.org/. 10. APEC 2011b. 1. APEC 2010a. 4. WTO Statistics Database, Tariff Proﬁle, 11. USAID and New Zealand Ministry of 2. APEC 2010b. The founding members of http://stat.wto.org/. Foreign Affairs and Trade 2010. APEC are Australia, Brunei Darussalam, 5. APEC 2005. 12. APEC 2012. Canada, Indonesia, Japan, Korea, 6. APEC 2011a. 13. Republic of Korea, Ministry of Justice Malaysia, New Zealand, the Philippines, 2011. 7. As Doing Business 2013 was going to Singapore, Thailand and the United press, the 2012 APEC Economic Policy 14. Based on information provided by the States. China; Hong Kong SAR, China; and Taiwan, China, joined in 1991. Report was scheduled to be released in APEC Policy Support Unit as of June Mexico and Papua New Guinea followed early October 2012. 2012. in 1993, Chile in 1994 and Peru, Russia 8. APEC 2011b. 15. World Bank 2011a, p. 7.

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47Does Doing Businessmatter for foreigndirect investment?Many people who use Doing Business signal to foreign investors of the overall  Even though Doing Businessdata—particularly in policy-making cir- quality of the business environment. And indicators focus on small tocles and in the private sector—associate some laws may indeed affect foreign- medium-size domestic ﬁrms, manybetter performance on the Doing Business owned ﬁrms in the same way that they policy makers have associatedindicators with greater inﬂows of foreign affect domestic ﬁrms. improvements in the indicatorsdirect investment (FDI), even though the with greater inﬂows of foreignmethodology is not explicitly designed Given the interest of so many govern- direct investment (FDI).for this purpose. Since the launch of last ments in attracting more foreign invest-  Cross-country correlations showyear’s report nearly 2,000 articles in the ment, this raises an important question: that FDI inﬂows are indeed higherinternational press have drawn a con- does Doing Business actually matter for for economies performing betternection between FDI and Doing Business. FDI? If so, does this suggest that Doing on Doing Business indicators,Such articles often suggest that higher Business indicators reﬂect the quality even when taking into accountDoing Business rankings will be associated of the investment climate at a broader differences across economies inwith more foreign investment, which is level? This case study presents evidence other factors considered importantbelieved to create jobs, bring in new tech- suggesting that they do—supporting for FDI.nologies and processes and have other a broader claim that economies thatbeneﬁcial collateral effects on the real  Results suggest that on average provide a good regulatory environmenteconomy. And many senior government across economies, a difference of for domestic ﬁrms tend to also provide aofficials have suggested that a better 1 percentage point in regulatory good one for foreign-owned ﬁrms.ranking for an economy implies that its quality as measured by Doinginvestment climate is more favorable to Business distance to frontier scores A FIRST LOOK AT THE LINK is associated with a difference inforeign investors. There is certainly a correlation between annual FDI inﬂows of $250–500The case studies underpinning the Doing the overall ease of doing business and FDI million.Business indicators focus on small to ﬂows. Grouping economies by the Doing  Although this correlation doesmedium-size domestic ﬁrms, so the laws, Business distance to frontier score for not imply causation, the evidenceregulations and practices tracked by the 2011,1 table 7.1 shows that those closest suggests that Doing Businessproject are not necessarily relevant to to the frontier in regulatory practice re- reﬂects more about the overalllarger foreign-owned ﬁrms. But the qual- ceived substantially more FDI than those investment climate than whatity of the laws and regulations, and the in the middle, which in turn received sub- matters only to small and medium-extent to which this quality is reﬂected stantially more than those furthest from size domestic ﬁrms.in their implementation, may be a useful the frontier. Figure 7.1 demonstrates this  In particular, these ﬁndings support the claim that economies TABLE 7.1 Average FDI inﬂows and stocks by tiers of economies grouped by their distance to that provide a good regulatory frontier, 2011 environment for domestic ﬁrms Average distance Economies grouped by Average FDI inﬂows Average FDI stocks to frontier tend to also provide a good one for distance to frontier (US$ millions) (US$ millions) (percentage points) foreign ﬁrms. Top 10 50,384 768,496 86.0 Middle 10 14,362 89,776 58.9 Lowest 10 1,257 8,179 34.2 Note: The distance to frontier measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). Source: Doing Business database; United Nations Conference on Trade and Development, UNCTADstat database.

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48 DOING BUSINESS 2013 FIGURE 7.1 Better overall regulation is correlated with more FDI inﬂows per capita well. Using a data set of regulations spe- Distance to frontier, 2011 ciﬁc to foreign investment, a study ﬁnds (percentage points) that the number of procedures required 100 to start a foreign-owned business and the strength of the arbitration regime both 80 have a signiﬁcant and robust effect on FDI.6 60 What about Doing Business? Using 4 years of Doing Business data, a recent 40 study ﬁnds that a better Doing Business ranking is signiﬁcantly associated with 20 larger FDI inﬂows7—strong support for the claim that higher Doing Business rank- 0 ings are a broad indicator of an attractive 0 300 600 900 1,200 1,500 investment climate. But the study is un- FDI inflows per capita, 2011 (US$) able to ﬁnd evidence for smaller subsets Note: The distance to frontier measure is normalized to range between 0 and 100, with 100 representing the best performance of economies, such as for developing (the frontier). Sample includes 157 economies with positive 2011 FDI inﬂows per capita of $1,500 or less. This includes all economies.8 Related research ﬁnds that economies covered by Doing Business 2012 for which data are available, excluding outliers with negative inﬂows or inﬂows greater than $1,500 per capita. Dropping these outliers does not signiﬁcantly affect the trend line. business regulations as measured by Source: Doing Business database; United Nations Conference on Trade and Development, UNCTADstat database. Doing Business inﬂuence the impact of FDI inﬂows: economies with more effec- graphically, using a different measure of the size of the market and its growth tive regulations for starting a business FDI: it shows that FDI inﬂows per person prospects, distance to important markets, beneﬁt more from the FDI ﬂows that they in 2011 were higher for economies that relative labor endowments and openness receive.9 were closer to the frontier. to trade tend to be important drivers of FDI. For example, the larger the market, WHAT DO THE DATA TELL US? But these are simple statistical correla- the greater the scope for economies of To expand on this existing body of tions looking at the relationship between scale in production and thus the greater research, Doing Business conducted its performance on the distance to frontier the chances for producing at competitive own econometric analysis of the relation- measure and FDI at a particular point in prices. Economies in Central and Eastern ship between Doing Business indicators time. What does more robust research Europe have received large inﬂows of FDI and FDI ﬂows. The analysis generally say about the determinants of FDI ﬂows? over the past couple of decades because follows the model established by an ear- they are seen as entry points into the lier study,10 considering the relationship RESEARCH ON FDI huge European market and also because between an economy’s performance on DETERMINANTS they have relatively well-educated labor Doing Business indicators and total FDI A large body of research has looked at forces. inﬂows from all other economies and the question of what the key drivers of The institutional and regulatory frame- taking into account differences in mac- FDI are. One approach in the literature work has also been shown to be an roeconomic and governance conditions. sees FDI as being market-seeking (driven important determinant of FDI. One study But it also adds to prior analysis in several by economy size and country location), ﬁnds that judicial independence and labor ways. It uses distance to frontier scores efficiency-seeking (driven by human market ﬂexibility are signiﬁcantly associ- rather than economy rankings, as a more capital or infrastructure quality) or ated with FDI inﬂows, depending on the precise measure of how far business resource-seeking (driven by the avail- sector of the investment.3 Another ﬁnds regulations are from the most efficient ability of natural resources or other that corruption is a signiﬁcant deterrent practice. Most speciﬁcations use 1 year strategic assets). Numerous studies have to FDI, having an effect comparable to the of distance to frontier scores to explain measured the signiﬁcance of these and impact of substantial increases in the tax subsequent years of FDI inﬂows, rather other explanatory variables.2 rate on foreign ﬁrms.4 Indirect taxes on than panel data over time. The analysis Many studies use a “gravity model,” foreign investors, which are higher than considers differences in natural resource which seeks to explain what causes FDI the direct foreign income taxes in many exports, and it covers a larger sample of ﬂows between 2 speciﬁc countries. This countries, also signiﬁcantly reduce FDI between 145 and 160 economies across research conﬁrms that such factors as inﬂows.5 Business regulations matter as speciﬁcations.11

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DOES DOING BUSINESS MATTER FOR FOREIGN DIRECT INVESTMENT? 49The basic model considers whether FIGURE 7.2 Complexity and cost of starting a domestic business are strongly correlated withdistance to frontier scores in 1 year are complexity of starting a foreign oneassociated with total FDI inﬂows in the Complexity of starting a foreign business, 2010 (distance to frontier, percentage points)following year. When taking into accountdifferences in income, inﬂation, popula- 100tion size, governance measures, opennessto trade and exports of primary goods, the 80analysis ﬁnds signiﬁcant results: a betterdistance to frontier score is signiﬁcantly 60associated with larger inﬂows of FDI.To account for potential ﬂuctuations 40in annual FDI ﬂows, a different modelexamines the distance to frontier score 20for 2005 and average FDI inﬂows for thesubsequent 5 years, and ﬁnds similar 0results. When considering population 20 40 60 80 100and income levels, as well as when using Complexity and cost of starting a domestic business, 2010 (distance to frontier, percentage points)several other model speciﬁcations, theanalysis ﬁnds a signiﬁcant positive as- Note: Figure plots the distance to frontier in starting a (domestic) business as measured by Doing Business and the distance tosociation between the distance to frontier frontier in starting a foreign business as measured by Investing Across Borders. The distance to frontier measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). Scores are shown for the 92score and FDI inﬂows. Other research has economies for which Investing Across Borders collected data in 2010.shown that Doing Business reforms are Source: Doing Business database; Investing Across Borders database.associated with greater domestic invest-ment and GDP growth,12 supporting the be associated with a 21% increase in its similar indicators from the Investinggeneral ﬁnding that reforms that improve annual FDI inﬂows.13 Across Borders project, which focuses onthe quality of the regulatory environment regulation of foreign direct investment.15are positively associated with FDI inﬂows. GOOD REGULATIONS The correlation between the distance toIn general, these results need to be ALL AROUND frontier measures of the 2 sets of indica- The strong and statistically signiﬁcant tors is 57%.interpreted cautiously. Correlation ofcourse does not imply causation. But the relationship between FDI and the overall This general relationship also holds forestimated magnitudes suggest that the level of regulation as measured by Doing comparable individual indicators fromlaws, regulations and practices captured Business indicators supports the claim Doing Business and Investing Across Bordersby Doing Business may have a strong inﬂu- that Doing Business data reﬂect more (ﬁgure 7.2). The correlation between theence on FDI ﬂows. Results suggest that about the overall investment climate complexity and cost of starting a localfor an economy with an average distance than what matters only to small and company as measured by Doing Businessto frontier score, moving 1 percentage medium-size local ﬁrms. These ﬁndings and the complexity of starting a local sub-point closer to the frontier regulatory en- also support the more general claim that sidiary of a foreign ﬁrm as measured byvironment is associated with $250–500 governments that regulate well in one Investing Across Borders is 81%.16 This cor- area, such as domestic business, tendmillion more in annual FDI inﬂows. These relation does not imply that the level of to also regulate well in other areas, suchstrong correlations, if upheld by further complexity is identical, however—indeed, as foreign investment. For example, aand more reﬁned research, would have while it takes 8 procedures and 26 days working paper on transparency for thissigniﬁcant policy implications: they on average to start a local business in the year’s report highlights the positive cor-suggest that relatively modest improve- economies covered by Investing Across relation between a transparent approachments in the regulatory environment Borders, it takes 10 procedures and 41 to governance in one regulatory area andcould potentially attract substantial days on average to start a foreign-owned efficient regulation in other areas.14increases in foreign investment. Consider company in those economies.the example of Costa Rica. If causation Comparing the Doing Business indicatorsis proven, the correlations suggest that with other measures of the regulatory CONCLUSIONimproving its score by just a percent- environment also supports this perspec- This case study presents evidence of aage point—to a regulatory environment tive. For example, some Doing Business signiﬁcant correlation between the Doingcomparable to that of Uruguay—would indicators are strongly correlated with Business indicators and ﬂows of FDI.

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50 DOING BUSINESS 2013 Although this does not imply causation, doing business index, which ranks economies, noting that this smaller the ﬁndings do support the claim that economies from 1 to 185. Another is the sample of economies is due to the use of distance to frontier, which measures how an unbalanced panel. Doing Business reﬂects more about the far an economy is from the most efficient 12. See, for example, Eifert (2009); and overall investment climate than what practice or highest score achieved by Haidar (2012). matters only to small and medium-size any economy since 2005 for each 13. These calculations were made using domestic ﬁrms. More deﬁnitive conclu- Doing Business indicator. This case study distance to frontier scores for 2009 and sions about the relationship between uses the distance to frontier measure data on FDI inﬂows in 2010 from the to capture not only how an economy United Nations Conference on Trade and Doing Business indicators and FDI will ranks relative to others but also how Development’s UNCTADstat database. require more reﬁned research. One initial far it is from the most efficient busi- The calculation for Costa Rica uses a step could be to disaggregate FDI by ness regulatory practices identiﬁed by lower-end estimate of $300 million in sector—for example, to compare the Doing Business. For more details, see the FDI ﬂows being associated with a 1 per- chapter on the ease of doing business centage point difference in the distance effect of business regulations on manu- to frontier score. and distance to frontier. facturing FDI with their effect on resource 14. Geginat, Gonzalez and Saltane 2012. 2. For an overview of such studies, see, for extraction FDI. If such research supports 15. The Investing Across Borders database example, Blonigen and Piger (2011); and the association between regulatory qual- Hornberger, Battat and Kusek (2011). launched by the World Bank Group ity as measured by Doing Business and the in 2010 presents indicators of FDI regula- 3. Walsh and Yu 2010. size of FDI ﬂows, government officials and tion across economies. The Investing 4. Wei 2000. Across Borders indicators referenced in business analysts will have even stronger 5. Desai, Foley and Hines 2003. this case study are based on data for justiﬁcation for claims that better Doing 87 economies published in the 2010 6. Waglé 2011. Business rankings should attract more FDI. Investing Across Borders report plus 5 ad- 7. Jayasuriya 2011. ditional economies for which data were 8. This suggests that the results may be collected but not included in that report. driven by differences between higher- NOTES 16. This correlation is calculated between and lower-income economies, not by This case study was written by John the distance to frontier in starting a variation within groups of economies. Anderson and Adrian Gonzalez. business as measured by Doing Business 9. Busse and Groizard 2008. 1. The Doing Business indicators can be and the distance to frontier in starting aggregated in multiple ways to create 10. Jayasuriya 2011. a foreign business as measured by composite measures of the investment 11. Jayasuriya (2011) estimates the inﬂuence Investing Across Borders, the same data as climate. One approach is the ease of of Doing Business rankings across 84 those shown in ﬁgure 7.2.

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51How transparent isbusiness regulationaround the world?Nobel Prize–winning economist Amartya newspapers publish data on monthly  It is in OECD high-incomeSen wrote in 2009 that lack of transpar- transfers of school grants to local govern- economies that businesses canency in the global ﬁnancial system was ments. By improving the ability of schools expect the most consistently easyamong the main factors contributing to and parents to monitor how local officials access to regulatory informationthe ﬁnancial crisis that began in 2008.1 handled the grants, the program reduced through websites or printedHad there been greater disclosure of the share of grant funding lost to cor- brochures.information, regulatory authorities could ruption from 80% to 20%.4 With more  Access to fee schedules forhave more effectively monitored the information, people can better evaluate regulatory processes is mostexplosive growth of increasingly so- different options and manage risks more limited in Sub-Saharan Africa andphisticated and opaque ﬁnancial instru- effectively.5 the Middle East and North Africa,ments—and the crisis might have been where it is more common to haveless severe. How much can transparency and ac- to meet with an ofﬁcial to obtain cess to information affect the quality of this information.An institutional environment character- the government services relevant forized by openness and transparency is of  The accessibility of regulatory businesses? A sizable body of literaturecentral importance not only for private information varies with income already attests to the importance ofmarkets but also for the effective and ef- level and internet penetration, information in ensuring the quality ofﬁcient management of public resources.2 but resources are not the only public services in such areas as health,Lack of transparency around the decisions explanation. sanitation and education.6 But thus farmade by policy makers and government little attention has been paid to this  Access to regulatory informationofficials can lead to resource misalloca- is easier in economies that are role of information in the administrativetion as funds, rather than being directed characterized by greater political branches of government that implementtoward their most productive ends, are accountability and that guarantee business regulation, such as companyinstead captured for private gain. Lack greater political and civil rights. and property registries, building depart-of transparency can also undermine the ments and power distribution utilities.  Economies providing greatercredibility of those who are perceived as access to regulatory informationbeing its beneﬁciaries and thus sharply Yet the World Bank Enterprise Surveys tend to have more efﬁcientlimit their ability to gain public support suggest that there is much room for regulatory processes and lowerfor economic and other reforms. regulatory compliance costs. improvement in service quality and ac-Access to information can empower countability in business regulation. Thecitizens to monitor the quality of gov- companies surveyed report that in aernment services and the use of public typical week their senior managers spendresources. Because government markets on average 11% of their time dealing withare usually monopolistic, the consumers government regulations. More than 50%of public services have no “exit” option— of them disagree with the notion thatthey cannot “vote with their feet” by regulations are implemented consistentlygoing to a competitor for better services. and predictably. And what’s worse, com-Access to information is therefore critical panies often have to pay a bribe to getif citizens are to exercise their “voice” things done. Worldwide, 19% of ﬁrmsin demanding greater accountability report having had to pay bribes in con-from public servants.3 The government nection with their application for an op-of Uganda demonstrated this by having erating license or electricity connection.7

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52 DOING BUSINESS 2013 About two-thirds of these are small or such as fee schedules for their services. FIGURE 8.1 Which agencies are more likely to medium-size ﬁrms. In only 25% of economies do all 4 agen- make information accessible? cies make fee schedules easily accessible Share of economies where agency makes This year’s report presents new data through their websites or through bro- fee schedules easily accessible (%) that speak to the efforts at transparency chures or notice boards. These are mostly 79 made by government agencies tasked higher-income economies, but they also with implementing business regulation. include low- and lower-middle-income The data capture how governments economies such as Armenia, Burkina 64 make basic regulatory information such Faso, El Salvador, Georgia and Tanzania. 56 as fee schedules available to businesses. 53 Around the world company registries are Because agencies in many developing most likely to make information available economies may be unable to rely on online or through brochures or notice online solutions, the data also consider boards, and building departments least other ways of making information avail- likely to do so (ﬁgure 8.1). On the brighter able, such as brochures and notice boards side, in only 7 of 176 economies do all 4 (see box 8.1 for a description of the new of these agencies require that custom- data and the Doing Business website for ers meet with an official to obtain fee Company Property Distribution Building detailed data at the economy level).8 registry registry utility department schedules. HOW TRANSPARENT IS Source: Doing Business database. Access to fee schedules is most limited in BUSINESS REGULATION? Sub-Saharan Africa and the Middle East Company registries, property registries, and North Africa. Of the 7 economies are in Sub-Saharan Africa and the other building departments and power distribu- globally where fee schedules cannot be in the Middle East and North Africa.9 On tion utilities in too many economies make obtained from any of the agencies sur- average in these regions businesses are it difficult to access basic information veyed without meeting with an official, 6 unable to ﬁnd fee schedules online or in a brochure for 2 of the 4 agencies. But there are notable exceptions. In Sub- BOX 8.1 HOW IS THE ACCESSIBILITY OF REGULATORY INFORMATION MEASURED? Saharan Africa, Burkina Faso, Mauritius, The new data on the accessibility of regulatory information, collected between South Africa and Tanzania guarantee January and August 2012, measure how easy it is to access fee schedules for 4 regula- easy access to information in all 4 tory processes in the largest business city of an economy: incorporating a new com- pany, obtaining a building permit, connecting a business to electricity and transferring regulatory areas. In the Middle East and property. Fee schedules are considered easily accessible if they can be obtained either North Africa, Oman and the United Arab through the website of the relevant agency or through public notices (brochures or Emirates provide the easiest access: in notice boards) available at that agency or a related one, without a need to meet with both these countries 3 of the 4 agencies an official. They are considered not easily accessible if they can be obtained only by meeting with an official. provide information without a need for a For incorporation fees the relevant agency is the company registry; for building per- meeting with an official. mit fees, the building department; for electricity connection fees, the distribution utility or electricity regulator; and for property transfer fees, the property registry. Businesses can expect consistently easy For each regulatory area, economies where information is easily accessible are as- access to information in OECD high- signed a score of 1; those where information is not easily accessible are assigned a income economies. More than 60% of score of 0. these economies make it easy to access Computed as a simple average of the scores for these 4 areas, an aggregate acces- information in all 4 regulatory areas sibility of information index is constructed for a sample of 176 economies for which covered by the new data. In Australia, the data are available for all 4 (see table). The index illustrates how consistent gov- Belgium, Denmark, Finland, Sweden and ernments are in their transparency efforts across different agencies and branches of the United States, for example, company government. registries, property registries, building Sample sizes for accessibility of information data departments and power distribution Measure Sample utilities all make fee schedules associ- Accessibility of information on incorporation fees 185 economies ated with their services available on the internet or through brochures. Greece, Accessibility of information on building permit fees 176 economies Hungary and Luxembourg are the only Accessibility of information on electricity connection fees 185 economies OECD high-income economies where Accessibility of information on property transfer fees 185 economies businesses still have to meet with an Accessibility of information index 176 economies official at 2 of the 4 agencies to get this information.

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HOW TRANSPARENT IS BUSINESS REGULATION AROUND THE WORLD? 53FIGURE 8.2 Accessibility of regulatory information varies with economies’ income level and internet taken into account, economies with penetration easy access to regulatory information Accessibility of Internet users are more likely to be democratic, to be information index (% of population) generally more transparent and to guar- High 0.9 60 antee greater political and civil rights 0.8 50 (ﬁgure 8.3). Governments that provide 0.7 27 greater transparency in their business 0.6 40 regulatory environment are also more 0.5 40 transparent in other areas. To take 2 73 30 0.4 43 examples, they disclose more budgetary 0.3 20 information (as measured by the Open 50 0.2 57 60 Budget Index of the International Budget 10 0.1 50 Partnership), and they make greater ef- Low 0 0 forts to publicize laws and make them Low income Lower middle Upper middle High income income income comprehensible to the wider public (as Economies where fee schedules are available through brochures (%) measured by the Rule of Law Index of the Economies where fee schedules are available through websites (%) World Justice Project).10 Internet usersNote: For an explanation of the accessibility of information index, see box 8.1. Relationships are signiﬁcant at the 5% level MORE INFORMATION, BETTERafter controlling for income per capita. BUSINESS REGULATION?Source: Doing Business database; World Bank, World Development Indicators database (2008 data). Greater access to regulatory information is also associated with more efficientWHO MAKES REGULATORY are multiple ways in which governments regulatory processes. Economies thatINFORMATION EASY TO can share information with the public. make fee schedules consistently easy toACCESS? Where internet access might be difficult, access rank higher on the ease of doingThe accessibility of regulatory informa- for example, information can be distrib- business—and they keep regulatory com-tion varies with income level and internet uted though brochures and notice boards. pliance costs for ﬁrms signiﬁcantly lower.penetration: low-income economies have Low-income economies such as Burkina Faso and Tanzania show that brochures Take the cost of starting a business. Thethe least regulatory transparency on can be an effective means of creating global average is a signiﬁcant 31% of in-average, and high-income economies the more transparency around regulatory come per capita. Entrepreneurs in lower-most (ﬁgure 8.2). In OECD high-income information. income economies face even highereconomies the accessibility of regula- costs, reaching 87% of income per capitatory information as measured by Doing The new data show that even when in Sub-Saharan Africa. But regardless ofBusiness is 38% higher than the average differences in income per capita are income levels, official incorporation feesfor the sample. Is the reason simply thatricher economies have more resourcesto invest in online solutions and in other FIGURE 8.3 Access to regulatory information is greater where democracy and political rightsways to make information easily acces- are greatersible to the public? More political rightsVariation within income groups suggests High accessthat making information easily acces- Moderate (44) accesssible may not be entirely a question of Low access (53) (72)resources; for many governments it may No accessalso be a question of choice. Tanzania, a (7)low-income economy, makes more infor- Fewer politicalmation easily accessible than such high- rightsincome economies as Greece, Kuwait and Less democratic More democraticthe United Arab Emirates. Cape Verde Note: The 176 economies in the sample are divided into 4 groups based on the accessibility of information index, and averagesand Georgia, two lower-middle-income are taken for the economies in each group on institutionalized democracy ratings (for 2012) and political rights ratings (foreconomies, also have higher accessibil- 2010). Numbers in parentheses are the number of economies in each group. Relationships are signiﬁcant at the 5% level after controlling for income per capita.ity levels than some richer economies. Source: Freedom House 2012; Center for Systemic Peace, Integrated Network for Societal Conﬂict Research; Doing BusinessMoreover, as ﬁgure 8.2 illustrates, there database.

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54 DOING BUSINESS 2013 FIGURE 8.4 Incorporation and electricity FIGURE 8.5 Greater access to regulatory information is associated with greater trust in connection fees are lower in regulatory quality economies with greater disclosure of fee schedules and structures Regulatory quality High 1.5 Average cost to start a business (% of income per capita) High access 1.0 52 0.5 No access 0 26 -0.5 Low -1.0 Economies by accessibility of regulatory information Economies where Economies where Note: The 176 economies in the sample are divided into 5 groups based on the accessibility of information index, and averages fee schedules are fee schedules are not are taken for the economies in each group on the Regulatory Quality Index ranking of the Worldwide Governance Indicators easily accessible easily accessible for 2009. The Regulatory Quality Index, ranging from -2.5 (weak) to 2.5 (strong), measures public perception of government’s ability to formulate and implement sound policies. Relationships are signiﬁcant at the 5% level after controlling for income per capita. Source: World Bank, Worldwide Governance Indicators; Doing Business database. Average cost to connect to electricity (% of income per capita) 2,351 access. Similar results were found for the to newspaper reports on drops in food fees to register property and to obtain a production and ﬂood damage to crops is construction permit. more pronounced where elections loom close, political competition is strong and Moreover, access to basic regulatory voter turnout high.14 In short, information information is also positively associated is more powerful when it is comple- 1,148 with the trust the public places in its gov- mented by incentives that hold officials ernment. Where regulatory information is accountable. more consistently accessible, businesses perceive their government as being better The data and analysis presented here able to formulate and implement sound suggest that easier access to regula- Economies where Economies where policies and regulations that permit and tory information such as fee schedules fee schedules are fee schedules are not easily accessible easily accessible promote private sector development is associated with greater regulatory ef- Note: Fee schedules are considered easily accessible if (ﬁgure 8.5). ﬁciency, lower compliance costs and bet- they can be obtained through the website of the relevant ter regulatory quality for businesses. This authority or another government agency or through public notices, without a need for a meeting with an ofﬁcial. The CONCLUSION seems to conﬁrm the ﬁndings of others data sample includes 185 economies. Relationships are signiﬁcant at the 5% level after controlling for income per A growing body of empirical research who have shown that more transparency capita. suggests that while transparency alone and better-quality government tend to go Source: Doing Business database. might not be enough to increase gov- hand in hand.15 ernment accountability, it is certainly tend to be signiﬁcantly lower in econo- necessary.12 A study of Brazilian mu- The correlations cannot answer the ques- nicipalities shows that mayors are less tion whether greater transparency might mies where fee schedules are easily ac- corrupt where citizens can gain access lead to better governments or whether cessible (ﬁgure 8.4).11 Starting a business to municipal budget reports, but only in better governments might also simply costs 26% of income per capita on aver- the municipalities where electoral rules be more transparent. Yet it seems that age in economies where fee schedules stipulate the possibility for reelection improving transparency could at least be are publicly available, but 52% where a good start in increasing the account- of a mayor. Where mayors cannot be they are not. Similarly, getting a new elec- reelected, access to budgetary informa- ability of public agencies charged with tricity connection costs more than twice tion has no effect in reducing corruption.13 implementing regulations. Only when as much in economies where information Similarly, a study in India found evidence citizens have access to information do on the connection fees is more difficult to that local governments’ responsiveness they also have a chance to act on the

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HOW TRANSPARENT IS BUSINESS REGULATION AROUND THE WORLD? 55information and use it to pressure for 7. In addition, research suggests that 13. Ferraz and Finan 2011.greater accountability of public agents. enterprise surveys in corrupt countries 14. Besley and Burgess 2002. tend to understate the gravity of the cor-The effort appears to be worth making, 15. See, for example, Islam (2006); and ruption problem. Jensen, Li and Rahmanand as the data here show, it need not Williams (2009). Islam (2006) ﬁnds (2010) ﬁnd that enterprises in countries that governments that are time-always be costly. Sometimes printing a with less press freedom are more likely to lier in releasing important political andsimple brochure might be enough. provide no responses or false responses macroeconomic data also rank better on on the issue of corruption. Corruption is various measures of good governance. understated in such countries. Using Granger causality regressions,NOTES 8. Fee schedules are generally made Williams (2009) shows that the releaseThis case study was written by Carolin available by implementing agencies and of information by governments hasGeginat. are not part of national legislation. The a positive short-term effect on the accessibility of this type of regulatory quality of bureaucracy. The analysis1. Amartya Sen, “Adam Smith’s Market information therefore speaks directly to uses data similar to those employed by Never Stood Alone,” Financial Times, the openness and transparency efforts of March 11, 2009, http://www.ft.com/. Islam (2006) as well as measures of particular government agencies. corruption, the size of government and2. Hirschman 1970; Paul 1992; Stiglitz 9. These economies are Botswana, the education, along with trade variables as 2003; Kaufmann 2003. Republic of Congo, Equatorial Guinea, control variables.3. Exit and voice are terms introduced by Eritrea, Gabon and Mauritania in Sub- Hirschman (1970) in his discussion on Saharan Africa and Iraq in the Middle how consumers can respond to poor- East and North Africa. quality provision of goods and services. 10. Geginat, Gonzalez and Saltane 2012.4. Reinikka and Svensson 2005. 11. The correlations were calculated on the5. Akerlof 1970; Stiglitz and Weiss 1981; basis of official regulatory compliance Hirshleifer 1980; Stigler 1971. costs only. Bribes that might have to be6. See, for example, World Bank (2004); paid as well in some economies are not Reinikka and Svensson (2005); Deininger captured by the cost estimates. and Mpuga (2005); and Besley and 12. See Olken (2007); Besley and Burgess Burgess (2002). (2002); and Ferraz and Finan (2011).

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56 Starting a business  Starting a business is easiest in Entrepreneurs around the world face the number of newly registered ﬁrms New Zealand, where it takes 1 a range of challenges. One of them is and sustained gains in economic perfor- procedure, 1 day, less than 1% of inefficient regulation. Doing Business mance, including improvements in em- income per capita and no paid-in measures the procedures, time, cost and ployment and productivity.1 For example, minimum capital. paid-in minimum capital required for a in both Canada and the United States small or medium-size limited liability empirical research ﬁnds that economic  From June 2011 to June 2012 Doing company to start up and formally oper- growth is driven by the entry of new for- Business recorded 36 reforms ate. To make the data comparable across mal businesses rather than by the growth making it easier to start a business. 185 economies, Doing Business uses a of existing ﬁrms.2 In Mexico the number  Burundi made the biggest standardized business that is 100% of registered businesses increased by 5% improvement in the ease of starting domestically owned, has start-up capital and employment by 2.2% after business a business in the past year. equivalent to 10 times income per capita, registration was simpliﬁed in different  Madagascar is among the engages in general industrial or com- municipalities.3 economies advancing the furthest mercial activities and employs between toward the frontier in regulatory 10 and 50 people within the ﬁrst month WHO REFORMED IN STARTING practice in starting a business of operations. A BUSINESS IN 2011/12? since 2005. According to a recent review, evidence In 2011/12, 36 economies made it easier  Simplifying company registration from several studies shows that reforms to start a business (table 9.1). Five others formalities was the most common making it easier to start a formal busi- made the process more difficult. Among feature of business start-up ness are associated with increases in those making it easier, some created online reforms in the past 8 years.  Among regions, Eastern Europe TABLE 9.1 Who made starting a business easier in 2011/12—and what did they do? and Central Asia has improved the Feature Economies Some highlights business start-up process the most Simpliﬁed registration Albania; Benin; Bulgaria; Albania made the notarization of since 2005. formalities (seal, publication, Burundi; China; Colombia; incorporation documents optional, cutting notarization, inspection, other Comoros; Democratic procedures by 1, time by 1 day and cost by For more information on good practices requirements) Republic of Congo; Republic 7% of income per capita. The Netherlands and research related to starting a of Congo; Lesotho; FYR eliminated the requirement for a declara- Macedonia; Netherlands; tion of nonobjection before incorporation, business, visit http://www Romania; Slovak Republic; cutting procedures by 1, time by 3 days .doingbusiness.org/data/ Tanzania; Togo; Ukraine; and cost by €91. Uzbekistan; Vietnam exploretopics/starting-a-business. Abolished or reduced minimum Kazakhstan; Kosovo; Mexico; Mexico eliminated its minimum capital For more on the methodology, see the capital requirement Mongolia; Morocco; Norway; requirement for limited liability companies. section on starting a business in the Serbia Norway reduced its requirement by 70%. data notes. Created or improved one-stop Burundi; Chad; Guinea; Guinea created a one-stop shop for busi- shop Lao PDR; Lesotho; ness start-up, cutting 6 procedures and 5 Madagascar; Thailand days from the start-up process. Cut or simpliﬁed Costa Rica; Sri Lanka; United Sri Lanka computerized and expedited the postregistration procedures Arab Emirates process of obtaining registration numbers (tax registration, social security with the Employees Provident Fund and registration, licensing) Employees Trust Fund. This cut time by 29 days. Introduced or improved online Ireland; Lithuania Ireland introduced an online facility for procedures business registration, reducing time by 3 days and cost by a third. Source: Doing Business database.

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STARTING A BUSINESS 57FIGURE 9.1 Burundi made starting a business easier in 2011/12 by setting up a one-stop shop have abolished the paid-in minimum Time (days) capital requirement (ﬁgure 9.3). 14 In 2005 only 2 low-income economies 12 made it easier to start a business. Seven 10 years later 9 did so. As a result, today 2 Before one-stop shop low- or lower-middle-income economies 8 After one-stop shop rank among the top 10 globally on the 6 ease of starting a business (table 9.2). 4 Changes in 2011/12 eliminated 4 procedures, cut time by 5 days and reduced cost by 98.4% of income Madagascar is among the economies 2 per capita advancing furthest toward the frontier in 0 regulatory practice in starting a business 1 2 3 4 5 6 7 8 since 2005 (table 9.3). This is thanks to 6 Procedures reforms making business start-up easier.Source: Doing Business database. The country set up a one-stop shop and improved its services over time. It alsoservices and standard registration docu- Globally, Burundi improved the most simpliﬁed registration formalities andments, which go a long way in facilitating in the ease of starting a business in the the publication requirement. Finally, it re-swift and legally sound incorporation. past year. The government reduced tax duced and then progressively eliminated registration costs and created a one-stop the paid-in minimum capital requirement.Lithuania introduced an online facil- shop at the Burundi Revenue Authority, Other economies also made steadyity for business registration. Sri Lanka bringing together representatives from progress over time: Guinea-Bissau andcomputerized and expedited the process several agencies involved in the business Tajikistan both implemented a one-stopof obtaining registration numbers with start-up process (ﬁgure 9.1). shop and simpliﬁed business registrationthe social security agencies. Other procedures.economies—including Mongolia and WHAT HAVE WE LEARNED Introducing information and communi-Serbia—eliminated the paid-in minimum FROM 8 YEARS OF DATA? cation technology has been a commoncapital requirement. Norway reduced it. In the past 8 years Doing Business recorded feature of start-up reforms, and todayTo encourage entrepreneurship among 368 business registration reforms in 149 106 economies use it for services rang-youth, Italy created a new type of lim- economies (ﬁgure 9.2). Globally since ing from name search to full onlineited liability company with a simpliﬁed 2005, the average time to start a business business registration. Of these, moreincorporation process for people under has fallen from 50 days to 30—and in than 40 offer electronic registrationage 35. Now it is working to extend this low-income economies the average has services. Several economies with theoption to all entrepreneurs. been reduced by half. Many economies fastest business start-up offer electronicFIGURE 9.2 Sub-Saharan Africa and Eastern Europe & Central Asia still lead in start-up reforms Number of Doing Business reforms making it easier to start a business by Doing Business report year Sub-Saharan Africa (46 economies) 3 10 12 14 16 7 15 11Eastern Europe & Central Asia (24 economies) 9 10 8 8 11 9 10 10 DB2006 Latin America & Caribbean DB2007 (33 economies) 5 9 4 6 9 10 8 3 DB2008 OECD high income (31 economies) 9 8 8 8 6 6 4 4 DB2009 East Asia & Pacific DB2010 (24 economies) 6 4 3 3 7 6 9 5 DB2011 Middle East & North Africa (19 economies) 4 4 4 9 9 3 6 2 DB2012 South Asia DB2013 (8 economies) 212 2 3 211 0 10 20 30 40 50 60 70 80 90Note: An economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2006(2005) includes 174 economies. The sample for DB2013 (2012) also includes The Bahamas, Bahrain, Barbados, BruneiDarussalam, Cyprus, Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar, for a total of 185 economies.Source: Doing Business database.

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58 DOING BUSINESS 2013 FIGURE 9.3 Worldwide, big cuts in the time and paid-in minimum capital requirement to TABLE 9.2 Where is starting a business start a business easiest—and where most difﬁcult? Average time to start a business (days) Easiest RANK Most difﬁcult RANK New Zealand 1 Côte d’Ivoire 176 OECD high income DB2013 Australia DB2006 2 Iraq 177 Canada 3 Suriname 178 Eastern Europe & Central Asia DB2013 DB2006 Singapore 4 West Bank and 179 Gaza South Asia DB2013 DB2006 Macedonia, 5 Congo, Rep. 180 FYR Middle East & North Africa DB2013 DB2006 Hong Kong 6 Chad 181 SAR, China East Asia & Pacific DB2013 DB2006 Georgia 7 Equatorial 182 Guinea Sub-Saharan Africa DB2013 DB2006 Rwanda 8 Eritrea 183 Latin America & Caribbean DB2013 Belarus 9 Haiti 183 DB2006 Ireland 10 Djibouti 185 0 10 20 30 40 50 60 70 80 Note: Rankings are the average of the economy’s rankings on the procedures, time, cost and paid-in Share of economies with no paid-in minimum capital requirement (%) minimum capital for starting a business. See the data notes for details. Economies shown with the same number are tied in the ranking. OECD high income DB2013 DB2006 Source: Doing Business database. DB2013 Eastern Europe & Central Asia DB2006 DB2013 TABLE 9.3 Who has narrowed the distance to South Asia DB2006 frontier in starting a business the Middle East & North Africa DB2013 most since 2005? DB2006 Improvement in DB2013 distance to frontier East Asia & Pacific DB2006 Most improved (percentage points) DB2013 Guinea-Bissau 63 Sub-Saharan Africa DB2006 (0Æ63) DB2013 Yemen, Rep. 57 Latin America & Caribbean DB2006 (17Æ74) 0 15 30 45 60 75 Tajikistan 55 Note: To ensure an accurate comparison, the ﬁgure shows data for the same sample of 174 economies for both DB2006 (30Æ85) (2005) and DB2013 (2012) and uses the regional classiﬁcations that apply in 2012. The economies added to the Doing Angola 53 Business sample after 2005 and therefore excluded here are The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus, (7Æ60) Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar. DB2006 data are adjusted for any data revisions and changes in methodology. Madagascar 52 (43Æ95) Source: Doing Business database. Saudi Arabia 50 (31Æ81) Egypt, Arab Rep. 46 registration—New Zealand, Australia, or improved theirs in the past 8 years. (42Æ88) Singapore, Canada, Portugal, Denmark Timor-Leste 45 Ninety-one economies require no paid-in (16Æ61) and Estonia (table 9.4). And online minimum capital, and many others have Mali 41 services are increasingly being offered in (26Æ67) developing economies. lowered the requirement. The average Mozambique 41 (40Æ81) paid-in minimum capital requirement has Eighty-eight economies have some sort Note: The distance to frontier measure shows how far on of one-stop shop for business registra- fallen from 183% of income per capita to average an economy is from the best performance achieved by any economy on each Doing Business indicator since tion, including the 58 that established only 44% since 2005. 2005—in this case for the starting a business indicators. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The data refer to the 174 economies included in Doing Business 2006 (2005). Eleven economies were added in subsequent years. The ﬁrst column lists the top 10 most improved economies in order; the second shows the absolute improvement in the distance to frontier between 2005 and 2012. Source: Doing Business database.

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60 Dealing with construction permits  Dealing with construction permits Construction regulation matters for TABLE 10.1 Where is dealing with is easiest in Hong Kong SAR, China, public safety. If procedures are too construction permits easiest— where it takes 6 procedures and 67 complicated or costly, builders tend and where most difﬁcult? days to complete this process. to proceed without a permit.1 By some Easiest RANK Most difﬁcult RANK estimates 60–80% of building projects Hong Kong 1 Montenegro 176  From June 2011 to June 2012 Doing SAR, China in developing economies are undertaken Business recorded 20 reforms Singapore 2 Azerbaijan 177 without the proper permits and approv- making it easier to deal with Georgia 3 Russian 178 als.2 Construction regulation also matters Federation construction permits. for the health of the building sector and Marshall 4 Serbia 179  Taiwan, China, made the biggest the economy as a whole. According to a Islands improvement in the ease of dealing recent study, the construction industry St. Vincent and 5 Tajikistan 180 the Grenadines with construction permits in the accounts on average for 6.5% of GDP New Zealand 6 China 181 past year. in OECD economies.3 Good regulations Bahrain 7 India 182  FYR Macedonia has advanced the help ensure the safety standards that Denmark 8 Ukraine 183 furthest toward the frontier in protect the public while making the per- Taiwan, China 9 Albaniaa 185 regulatory practice in construction mitting process efficient, transparent and Grenada 10 Eritreaa 185 permitting since 2005. affordable. Note: Rankings are the average of the economy’s rankings on the procedures, time and cost to comply  Among regions, Eastern Europe To measure the ease of dealing with con- with formalities to build a warehouse. See the data notes and Central Asia has made the struction permits, Doing Business records for details. a. Albania and Eritrea are both “no practice” economies biggest improvements in the the procedures, time and cost required with barriers preventing private builders from legally ease of dealing with construction for a small to medium-size business to obtaining a building permit. They are tied in the ranking. permits since 2005. Source: Doing Business database. obtain all the necessary approvals to  Introducing or improving one- build a simple commercial warehouse stop shops was among the most and connect it to water, sewerage and a ﬁxed telephone line (table 10.1). The case longer and costlier. East Asia and the common features of construction study includes all types of inspections Paciﬁc, Latin America and the Caribbean, permitting reforms in the past 8 years. and certiﬁcates needed before, during OECD high-income economies and Sub- and after construction of the warehouse. Saharan Africa had the largest number For more information on good To make the data comparable across 185 making it easier, all with 4, followed by practices and research related to dealing with construction permits, economies, the case study assumes that Eastern Europe and Central Asia with 3 visit http://www.doingbusiness the warehouse is located in the periurban and South Asia with 1. The Middle East .org/data/exploretopics/dealing- area of the largest business city, is not in and North Africa implemented no major with-construction-permits. For more a special economic or industrial zone and regulatory improvements in the area on the methodology, see the section will be used for general storage activities. of dealing with construction permits in on dealing with construction permits 2011/12. in the data notes. WHO REFORMED IN DEALING WITH CONSTRUCTION Taiwan, China, made the biggest im- PERMITS IN 2011/12? provement in the ease of dealing with From June 2011 to June 2012 Doing construction permits in the past year (ﬁg- Business recorded 20 reforms making it ure 10.1). By early 2012 the city of Taipei easier to deal with construction permits had ﬁnished implementing a single win- (table 10.2). Six others made the process dow for preconstruction approvals and

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62 DOING BUSINESS 2013 FIGURE 10.2 Eastern Europe and Central Asia keeps up its fast pace in construction permitting TABLE 10.4 Who has narrowed the distance reforms to frontier in dealing with Number of Doing Business reforms making it easier to deal with construction permits by construction permits the most Doing Business report year since 2005? Improvement in Eastern Europe & Central Asia DB2006 (24 economies) 4 6 3 5 10 5 3 3 distance to frontier DB2007 Most improved (percentage points) Sub-Saharan Africa 3 5 6 3 7 5 4 Macedonia, FYR (46 economies) DB2008 46 Latin America & Caribbean DB2009 (36Æ82) (33 economies) 1 2 2 2 4 4 3 4 DB2010 Kyrgyz Republic 42 OECD high income (31 economies) 4 5 11 4 1 2 4 (39Æ81) DB2011 East Asia & Pacific Tajikistan 41 (24 economies) 1 2 2 3 2 11 4 DB2012 (11Æ52) Middle East & North Africa DB2013 (19 economies) 3 1 7 11 Burkina Faso 39 South Asia (43Æ82) 1 (8 economies) Nigeria 34 0 5 10 15 20 25 30 35 40 45 (44Æ78) Note: An economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2006 Georgia 31 (2005) includes 174 economies. The sample for DB2013 (2012) also includes The Bahamas, Bahrain, Barbados, Brunei (61Æ92) Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar, for a total of 185 economies. Equatorial Guinea 30 Source: Doing Business database. (45Æ75) Hong Kong SAR, China 30 (67Æ97) Among the most difficult changes to im- location. These one-stop shops improve Guatemala 26 plement is the introduction or improve- the organization of the review process— (51Æ77) ment of a one-stop shop. Construction not by reducing the number of checks São Tomé and Príncipe 26a (53Æ79) approval systems usually involve many needed but by better coordinating the Note: The distance to frontier measure shows how far different agencies. To prevent overlap in efforts of the agencies involved. In the on average an economy is from the best performance achieved by any economy on each Doing Business their roles and ensure efficiency, many past 8 years 18 regulatory reforms were indicator since 2005—in this case for the dealing economies have opted to put represen- implemented to set up or improve one- with construction permits indicators. The measure is normalized to range between 0 and 100, with 100 tatives from many agencies in a single stop shops, including the efforts made representing the best performance (the frontier). The data refer to the 174 economies included in Doing Business 2006 (2005). Eleven economies were added in FIGURE 10.3 Biggest time savings in Eastern Europe and Central Asia subsequent years. The ﬁrst column lists the top 10 most improved economies in order; the second shows the Average time to deal with construction permits (days) absolute improvement in the distance to frontier between 2005 and 2012. OECD high income DB2013 a. The Democratic Republic of Congo and Croatia also DB2006 have an improvement of 26 percentage points. Source: Doing Business database. East Asia & Pacific DB2013 DB2006 by Brunei Darussalam, Malaysia and Middle East & North Africa DB2013 DB2006 Taiwan, China, in 2011/12. The 2 regions with the most such reforms are East Sub-Saharan Africa DB2013 DB2006 Asia and the Paciﬁc (with 5) and Eastern Europe and Central Asia (with 5). South Asia DB2013 DB2006 Introducing risk-based approval systems Eastern Europe & Central Asia DB2013 is also a complex yet important change. DB2006 Not all building projects are associated Latin America & Caribbean DB2013 DB2006 with the same economic or environmental 0 50 100 150 200 250 300 risks. It therefore makes sense to differen- tiate construction permitting processes to Before construction (including building permit) During and after construction, utility connections treat buildings according to their risk level and location. This saves time for both en- Note: To ensure an accurate comparison, the ﬁgure data includes172 practice economies for both DB2006 (2005) and DB2013 (2012) and uses the regional classiﬁcations that apply in 2012. The economies added to the Doing Business sample after 2005 trepreneurs and authorities and allows and therefore excluded here are The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, them to direct their efforts and resources Malta, Montenegro and Qatar. DB2006 data are adjusted for any data revisions and changes in methodology. more efficiently. Seventeen regulatory Source: Doing Business database. reforms introduced risk-based approvals

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DEALING WITH CONSTRUCTION PERMITS 63in the past 8 years, including those in improve regulations. FYR Macedonia has per capita. Today it takes 10 proceduresGuatemala and Turkey in 2011/12. Eastern advanced the furthest toward this frontier and 117 days and costs 518% of incomeEurope and Central Asia led the way with since 2005 (table 10.4). per capita.7 such reforms, followed by Latin Americaand the Caribbean with 4. Authorities in Skopje implemented 4 reforms making it easier to deal with con- NOTESMany economies have gone particularly struction permits, including passing new This topic note was written byfar in closing the gap with the most ef- construction laws, privatizing part of the Marie Lily Delion, Anastasia Shegay,ﬁcient regulatory systems for dealing inspection process and reducing several Alejandro Espinosa-Wang and Yucheng Zheng.with construction permits, such as those fees. The changes made a difference for 1. Moullier 2009.in Hong Kong SAR, China, and Georgia builders in FYR Macedonia. In 2005 com- 2. De Soto 2000.(table 10.3). Those making the greatest plying with all regulatory requirements 3. OECD 2010. progress toward the frontier in regula- for constructing the standard warehousetory practice in this area have been able took 20 procedures and 244 days andto do so thanks to a continual effort to cost the equivalent of 2,439% of income

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64 Getting electricity  Getting an electricity connection is Infrastructure services, particularly elec- TABLE 11.1 Where is getting electricity easiest in Iceland, where it takes 4 tricity, are a concern for businesses around easiest—and where most procedures and 22 days. the world. World Bank Enterprise Surveys difﬁcult? show that managers in 109 economies, 71 Easiest RANK Most difﬁcult RANK  From June 2011 to June 2012 Doing Iceland of them low or lower middle income, con- 1 Sierra Leone 176 Business recorded 13 reforms Germany sider electricity to be among the biggest 2 Kyrgyz Republic 177 making it easier to get electricity. constraints to their business. In addition, Korea, Rep. 3 Nigeria 178  Armenia made the biggest managers estimate losses due to power Hong Kong 4 Malawi 179 SAR, China improvement in the ease of getting outages at an average 5.1% of annual Singapore 5 Senegal 180 electricity in the past year. sales.1 Taiwan, China 6 Tajikistan 181  Vanuatu and The Gambia have United Arab Doing Business measures the procedures, 7 Guinea-Bissau 182 advanced the furthest in narrowing Emirates the gap with the most efﬁcient time and cost for a small to medium-size Switzerland 8 Madagascar 183 regulations governing electricity business to get a new electricity connec- Sweden 9 Russian 184 connections since 2010. tion for a warehouse. To make the data Federation comparable across 185 economies, Doing Thailand 10 Bangladesh 185  Sub-Saharan Africa, the region Business uses a standardized case study of Note: Rankings are the average of the economy’s where improvements are most a newly established warehouse requiring rankings on the procedures, time and cost to get an electricity connection. See the data notes for details. needed, leads in the number a connection 150 meters long and with Source: Doing Business database. of reforms making electricity a power need of 140 kilovolt-amperes regulations more business-friendly. (kVA). The warehouse is assumed to be For more information on good located in the largest business city, in an connection delays and the duplication of practices and research related to area where warehouses usually locate formalities. In Canada a more efficient getting electricity, visit http://www. and electricity is most easily available. process for obtaining the excavation doingbusiness.org/data/exploretopics/ permit and materials needed for the getting-electricity. For more on the connection reduced the time to get a methodology, see the section on getting WHO REFORMED IN GETTING ELECTRICITY IN 2011/12? new electricity connection by 26 days. In electricity in the data notes. Indonesia in 2011 the utility PT PLN set Economies where getting an electric- up a call center enabling customers to ity connection is easy have several good request a new electricity connection by practices in common (table 11.1). Other phone. It further simpliﬁed the applica- economies are adopting some of these tion process by eliminating the require- practices. From June 2011 to June 2012 ment to bring in a copy of a neighbor’s Doing Business recorded 13 reforms that bill to help determine the exact address made getting electricity easier (table of the new customer’s business. 11.2). Two economies introduced changes that made connections costlier. As these examples show, small adjust- ments can lead to big gains in time Improving process efficiency within the utility and streamlining approvals and efficiency. Other economies have with other public agencies are the most adopted broader approaches. Armenia common features of reforms making it and Georgia streamlined procedures easier to get electricity. These are also and revised connection costs through among the most effective ways to reduce several amendments to the regulations

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GETTING ELECTRICITY 65 TABLE 11.2 Who made getting electricity easier in 2011/12—and what did they do? TABLE 11.3 Who makes getting electricity Feature Economies Some highlights easy—and who does not? Improved process Procedures (number) Canada; Indonesia; In Italy the utility Acea Distribuzione reorganized its efﬁciency Italy; Liberia; Mexico; departmental workﬂow, increasing efﬁciency and reducing Fewest Most Namibia; United the time to complete external connection works. In Liberia Comoros 3 Nigeria 8 Arab Emirates the materials needed for an electricity connection are now readily available in the utility’s stock, reducing the time Germany 3 Senegal 8 to obtain a connection. The purchase of materials was facilitated by increased donor funding. Japan 3 Sierra Leone 8 Streamlined approval Angola; Armenia; In Armenia the Public Services Regulatory Commission Micronesia, 3 Azerbaijan 9 process Georgia; Guinea adopted resolutions giving customers more technical Fed. Sts. options for connecting to electricity. As a result, customers St. Vincent 3 Bangladesh 9 no longer have to wait for a permit from the State Energy and the Inspectorate. The commission also revised its fee structure, Grenadines reducing the costs customers pay for a new connection. Sweden 3 Mozambique 9 Improved regulation Republic of Korea; In Rwanda the installation cost that a customer must pay of connection costs Switzerland 3 Tajikistan 9 Rwanda the Energy, Water and Sanitation Authority for the external and processes connection works was reduced from 30% of the materials Timor-Leste 3 Uzbekistan 9 cost to 15% when the customer provides the materials. Afghanistan 4 Russian 10 Source: Doing Business database. Federation Iceland 4 Ukraine 11governing the process of connecting new enhancement to its SAP system. The Time (days)customers. In Armenia the new connec- new system allows customers to both Fastest Slowesttion process eliminated 1 procedure while submit and track their application online. Germany 17 Cyprus 247a revised fee structure reduced the cost of It also streamlines their interactions St. Kitts and 18 Hungary 252 with the utility and with their electrical Nevisnew connections. In Georgia the National contractor by offering a single interface. Iceland 22 Nigeria 260Commission on Energy and Water Austria 23 Czech 279 Implementation of the new system re-Regulation, through a resolution adopted Republic duced the time to get a new connection Taiwan,in November 2011, also introduced a new 24 Russian 281 by 15 days. China Federationprocess and a revised fee structure. The St. Lucia 25 Ukraine 285changes reduced the number of proce- Other utilities have reduced connection Korea, Rep. 28 Bangladesh 404dures by 1, the time by a quarter and the costs and wait times by improving pro- Rwanda 30 Madagascar 450cost by a ﬁfth (ﬁgure 11.1). curement practices. The Liberia Electricity Chile 31 Guinea- 455 Corporation reduced the time to get a Bissau Puerto Rico 32 Liberia 465In the United Arab Emirates the Dubai new connection by 120 days by ensuring (U.S.)Electricity and Water Authority intro- that the materials needed for the connec-duced a “one window, one step” applica- tion are readily available in its stock. The Cost (% of income per capita)tion for getting electricity as the latest utility of the Namibian city of Windhoek Least Most Japan 0.0 Djibouti 7,776.4 Hong Kong 1.6 Guinea 8,377.7FIGURE 11.1 Georgia made obtaining an electricity connection faster and cheaper SAR, China Qatar 3.9 Malawi 8,854.9 Time to get electricity (days) Norway 6.5 Madagascar 9,056.7 100 Trinidad and 6.6 Chad 11,017.6 Tobago Cost cut from Time cut 80 $20,209 to $16,068 from 96 days Australia 8.7 Central 12,603.6 to 71 African Republic 60 Panama 13.6 Burkina Faso 12,662.0 Israel 13.8 Benin 14,343.1 40 Uruguay 14.3 Burundi 21,481.7 Procedures cut from 20 5 to 4 Iceland 14.9 Congo, Dem. 27,211.6 Rep. Source: Doing Business database. 0 1 2 3 4 5 Procedures 2011 2012Source: Doing Business database.

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66 DOING BUSINESS 2013 FIGURE 11.2 Sub-Saharan Africa had the most reforms in getting electricity in the past 3 years TABLE 11.4 Who has narrowed the distance Number of Doing Business reforms making it easier to get electricity by Doing Business to frontier in getting electricity report year the most since 2010? Improvement in Sub-Saharan Africa (46 economies) 5 1 5 distance to frontier Eastern Europe & Central Asia Most improved (percentage points) (24 economies) 1 2 2 Vanuatu 19 East Asia & Pacific (48Æ67) (24 economies) 3 1 DB2011 Latin America & Caribbean Gambia, The 17 3 1 DB2012 (33 economies) (46Æ63) OECD high income DB2013 (31 economies) 1 3 Central African Republic 15 Middle East & North Africa (13Æ28) (19 economies) 1 1 Zimbabwe 13 South Asia (40Æ53) (8 economies) 1 0 4 6 8 10 12 Afghanistan 12 2 (55Æ67) Note: An economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2011 Latvia 12 (2010) includes 176 economies. The sample for DB2013 (2012) includes a total of 185 economies. (61Æ73) Source: Doing Business database. Georgia 12 (72Æ84) Kyrgyz Republic 11 took several steps aimed at reducing con- regulatory reforms making it easier to (33Æ44) nection times and costs. First, the utility get a new electricity connection. Sub- Congo, Rep. 11 created a new template for calculating Saharan Africa accounts for the largest (35Æ46) commodity prices, enabling it to provide number of such reforms, with 11. Eastern Angola 10 (55Æ65) customers with a cost estimate for a new Europe and Central Asia follows (ﬁgure Note: The distance to frontier measure shows how far on connection more easily and thus more 11.2). Among the most common and ef- average an economy is from the best performance achieved quickly. Second, the utility selected a fective features of regulatory reforms in by any economy on each Doing Business indicator—in this case for the getting electricity indicators since 2010. The more effective, efficient and experienced this area have been improving process measure is normalized to range between 0 and 100, with civil contractor through an open tender efficiency within the utility, streamlining 100 representing the best performance (the frontier). The data refer to the 176 economies included in the getting process. Together, these 2 measures procedures and approvals with other electricity sample in 2010. Nine economies were added reduced the connection time by 17 days. public agencies, making information on in subsequent years. The ﬁrst column lists the top 10 most improved economies in order; the second shows the Finally, the utility began acquiring ma- connection fees and costs more read- absolute improvement in the distance to frontier between terials and equipment through an open ily available to customers, regulating the 2010 and 2012. Source: Doing Business database. tender process held every 2 years. This electrical profession to ensure the quality led to more competition and lower prices, reducing the connection cost by 77.8% of income per capita. FIGURE 11.3 In economies where utilities make the connection process cheap and efﬁcient, supply Many economies put an emphasis on is likely to be more reliable making it easier to get a connection to the distribution network as a way to increase Average ranking on ease Average cost to get electricity of getting electricity (% of income per capita) the electriﬁcation rate and stimulate 4,998 150 5,000 business growth. Rwanda is an example. 130 Its process for obtaining a connection 120 4,000 is among the fastest in the world (table 94 11.3). The government improved it further 90 3,000 by reducing installation costs. Customers 53 60 2,000 still provide the materials for the connec- 1,190 tion, but rather than paying an additional 30 1,000 571 30% of that cost to the utility for installa- 0 0 tion, they now pay only half that. <1 1–100 >100 <1 1–100 >100 Annual power outages (hours) Annual power outages (hours) WHAT WERE THE TRENDS Note: Data refer to outages per low- or medium-voltage customer in the largest business city. The sample includes 86 IN THE PAST 3 YEARS? economies. South Asia is excluded because of lack of data. Relationships in the ﬁrst graph are signiﬁcant at the 5% level after controlling for income per capita. Relationships in the second graph are signiﬁcant at the 1% level after controlling for income In the past 3 years 30 economies per capita. around the world implemented 31 Source: Doing Business database.

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GETTING ELECTRICITY 67of internal wiring and lessening the bur- Analysis of data for 140 economies sug- 3. This analysis, by Geginat and Ramalhoden of security deposits. gests that the getting electricity indica- (2010), was done in 2009, when the data sample for the getting electricity tors can serve as a useful proxy for the indicators included only 140 economies.Making it easier to get an electricity con- broader performance of the electricity For 2012 the indicators cover 185nection pays off. Since 2010 Vanuatu and sector.3 Greater time and cost to get an economies.The Gambia have advanced the furthest electricity connection are associated with 4. The price paid by a customer to get ain narrowing the gap with the regulatory lower electriﬁcation rates. Additional new connection is not necessarily asystems of economies with the most ef- connection procedures are more likely to measure of the operational performanceﬁcient practices in connecting new cus- occur in economies where the electricity of the electricity utility but of the existing supply is weak as a result of high losses regulatory framework and the policy totomers (table 11.4). expand electricity access (partial or total in the transmission and distribution subsidization of the costs incurred toWHAT DO THE INDICATORS systems. New analysis of data for 86 build the connection). Besides efficientSUGGEST ABOUT QUALITY economies suggests that where utilities distribution companies, generation make the connection process cheap capacity and proper transmissionOF SUPPLY? and efficient as measured by the getting infrastructure also play a critical part inStudies have shown that poor electricity reducing power outages. electricity indicators, supply is likely tosupply adversely affects the productivity be more reliable as measured by the total The analysis was based on data collectedof ﬁrms and the investments they make in hours of power outages per customer per from distribution utilities and regula-their productive capacity.2 It is therefore year (ﬁgure 11.3).4 tors on the total hours of outages peressential for businesses to have reli- customer in the largest business city.able, good-quality electricity supply. But The analysis distinguished connection type by low or medium voltage (basedwhether electricity supply is reliable or NOTES This topic note was written by Maya on the getting electricity case study) andnot, the ﬁrst step for customers is to get outages for the respective voltage level. Choueiri, Caroline Frontigny, Anastasiaa new connection, the process measured Shegay, Jayashree Srinivasan and Susanne The data analysis included the Systemby the getting electricity indicators. This Szymanski. Average Interruption Duration Indexprocess represents only a small part of 1. The surveys are for various years in (SAIDI), the System Average Interruption 2002–10. The data sample includes 113 Frequency Index (SAIFI) and theelectricity services. Yet the indicators of- economies. Customer Average Interruption Durationfer information on a number of issues for Index (CAIDI). Many utilities do not 2. Calderon and Servén 2003; Dollar,which data were previously unavailable, use these measures but provided other Hallward-Driemeier and Mengistaecomplementing indicators measuring 2006; Reinikka and Svensson 1999; Eifert indices and statistics on power outages.such outcomes as outages. 2007; Iimi 2011.

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68 Registering property As measured by Doing Business, Doing Business records the procedures subdivision or common-interest commu- registering property is easiest in necessary for a business to purchase a nity). Malaysia is now working to bring Georgia. property from another business and to registration times for strata properties, formally transfer the property title to the still in the range of 90–100 days, down to From June 2011 to June 2012 Doing buyer’s name. The process starts with a similar time frame. Business recorded 17 reforms obtaining the necessary documents, making it easier to register property. such as a copy of the seller’s title, and The OECD high-income group had both Malaysia made the biggest ends when the buyer is registered as the largest share of economies with a improvement in the ease of the new owner of the property. Every property registration reform and the larg- registering property in the past year. procedure required by law or necessary est number of such reforms in 2011/12, Angola, Burkina Faso, Côte in practice is included, whether it is the accounting for 6 of the 17 such reforms d’Ivoire, Mauritius, Rwanda and responsibility of the seller or the buyer recorded worldwide (ﬁgure 12.1). Poland, Sierra Leone rank among the 10 and even if it must be completed by a with the biggest improvement in the economies making the biggest third party on their behalf. As measured group, increased the efficiency of its land improvements since 2005, giving by Doing Business, formally transferring and mortgage registries through a series Sub-Saharan Africa the largest and registering property is easiest in of coordinated changes. These included representation in this group. Georgia (table 12.1). creating 2 new registration districts in Warsaw, introducing a new caseload Economies making effective cuts in WHO REFORMED IN management system and digitizing the the procedures to register property have centralized procedures in REGISTERING PROPERTY records of the registries. Thanks to the a single agency. And they use IN 2011/12? changes, the time to process property In 2011/12, 17 economies made it easier applications at the registries fell from 3–6 information and communication technology or better caseload for local businesses to register property management systems to make the by reducing the procedures, time or cost TABLE 12.1 Where is registering property process faster and less costly. required (table 12.2). The most common easiest—and where most difﬁcult? improvements were introducing timeFor more information on good Easiest RANK Most difﬁcult RANKpractices and research related to limits or expedited procedures, increas- Georgia 1 Belgium 176registering property, visit http:// ing administrative efficiency, streamlining New Zealand 2 Trinidad and 177www.doingbusiness.org/data/ procedures and computerizing cadastres Tobagoexploretopics/registering-property. and registries. Nine other economies Belarus 3 Liberia 178For more on the methodology, see the made it more difficult to transfer prop- Armenia 4 Bahamas, The 179section on registering property in the erty by increasing the procedures, time or Lithuania 5 Guinea-Bissau 180data notes. cost involved. Denmark 6 Eritrea 181 Norway 7 Nigeria 182 Malaysia made the biggest improvement Slovak Republic 8 Marshall 185 in the ease of registering property in the Islands past year by introducing a new caseload Azerbaijan 9 Micronesia, 185 management system at the land registry. Fed. Sts. Inspired by Toyota’s effective supply Iceland 9 Timor-Leste 185 chain management strategy, the registry Note: Rankings are the average of the economy’s rankings on the procedures, time and cost to register reduced registration time from 41 days property. See the data notes for details. Economies shown in 2011 to 7 days in 2012 for nonstrata with the same number are tied in the ranking. Source: Doing Business database. properties (those that are not part of a

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REGISTERING PROPERTY 69 TABLE 12.2 Who made registering property easier in 2011/12—and what did they do? months in 2011 to as little as 14–60 days Feature Economies Some highlights in 2012. Other OECD high-income econ- Introduced effective Burundi; Israel; Average time saved: 39 days omies improving their property registra- time limits Mauritius; Ukraine Israel introduced a 20-day time limit for tax authorities to process capital gains self-assessments on property tion process were the Czech Republic, transfers, saving about 2 months. Burundi, Mauritius and Ukraine introduced time limits at their land registries and, Denmark, Ireland, Israel and Italy. while full compliance has not yet been achieved, have already cut registration time by 30 days, 7 days and 48 days, respectively. WHAT HAVE WE LEARNED Increased Malaysia; Panama; Average time saved: 38 days FROM 8 YEARS OF DATA? administrative Poland; Sierra Leone; Malaysia implemented a new caseload management system efﬁciency Trinidad and Tobago in the land ofﬁce, enabling clerks to process property In the past 8 years Doing Business record- transfer applications 34 days faster. The increase of the number of operating hours of the Public Registry of Panama ed 185 reforms, undertaken in 121 econo- until 11pm has cut 4 days in time. Poland cut 98 days from the time to register property by introducing a new caseload mies, which increased the efficiency of management system for land registries. Sierra Leone increased efﬁciency at the Ministry of Lands by digitizing procedures for transferring property (see records and hiring more personnel, reducing the time to ﬁgure 12.1). Globally, the average time to register property by 19 days. The Water Authority (WASA) of Trinidad and Tobago, reduced the time needed to obtain its transfer property fell by 35 days, from 90 clearance certiﬁcate by 35 days, from 42 days to 7 days. to 55, and the average cost by 1.2 per- Computerized Bosnia and Average time saved: 32 days procedures Herzegovina; Cyprus; Bosnia and Herzegovina computerized its commercial registries, centage points, from 7.1% of the property Italy; Mauritius; cutting registration time by 8 days. Cyprus reduced time by 14 Poland days by computerizing its land registry. Mauritius implemented value to 5.9% (ﬁgure 12.2). an electronic information management system at the Registrar- General’s Department to allow different branches of the depart- ment to share information, cutting 7 days from the processing TABLE 12.3 Who has narrowed the distance of property transfers. Italy merged all due diligence procedures performed by notaries through a secure portal, Notartel, which to frontier in registering gives notaries access to the databases of the land registry, property the most since 2005? cadastre and commercial registry. Improvement in Reduced taxes or fees Comoros; Ireland Cost reduction: up to 6% of the property value distance to frontier Ireland introduced a single stamp duty rate for transfers of Most improved (percentage points) nonresidential properties and reduced the rate by 4% of Maldives 49 the property value, from 6% to 2%. The Comoros reduced (0Æ49) the transfer tax from 15% of the property value to 9%. Belarus 42 Combined or reduced Czech Republic; Italy Procedures cut: 1 (54Æ96) procedures The Czech Republic cut 1 procedure by giving the cadastral ofﬁce online access to the database of the commercial reg- Burkina Faso 39 istry. Italy gave notaries online access to all cadastral plans, (23Æ62) eliminating the need to request the plans from the cadastre. Rwanda 38 Put procedures online Denmark Time saved: 6 days (36Æ74) Denmark’s land registry introduced electronic ﬁling of Mauritius 37 property transfers and now accepts property transfer ap- (33Æ70) plications only online, cutting 6 days. Bosnia and Herzegovina 32 Source: Doing Business database. (36Æ68) Côte d’Ivoire 30FIGURE 12.1 Sub-Saharan Africa leads in number of property registration reforms (22Æ52) Number of Doing Business reforms making it easier to register property by Doing Business Angola 27 report year (27Æ54) Sierra Leone 24 Sub-Saharan Africa 1 10 9 9 6 7 4 DB2006 (28Æ52) (46 economies) 6 Eastern Europe & Central Asia DB2007 Slovenia 24a (24 economies) 3 4 3 9 7 1 6 3 DB2008 (47Æ71) OECD high income Note: The distance to frontier measure shows how far (31 economies) 4 3 4 2 7 7 3 6 DB2009 on average an economy is from the best performance Latin America & Caribbean DB2010 achieved by any economy on each Doing Business (33 economies) 3 3 6 2 5 4 2 2 DB2011 indicator since 2005—in this case for the registering East Asia & Pacific property indicators. The measure is normalized to range (24 economies) 1 2 3 3 21 DB2012 between 0 and 100, with 100 representing the best Middle East & North Africa DB2013 performance (the frontier). The data refer to the 174 (19 economies) 2 2 3 2 3 economies included in Doing Business 2006 (2005). South Asia Eleven economies were added in subsequent years. The (8 economies) 2 2 1 2 2 1 ﬁrst column lists the top 10 most improved economies in 0 10 20 30 40 50 60 order; the second shows the absolute improvement in the distance to frontier between 2005 and 2012.Note: An economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2006(2005) includes 174 economies. The sample for DB2013 (2012) also includes The Bahamas, Bahrain, Barbados, Brunei a. Burundi and the Solomon Islands also have anDarussalam, Cyprus, Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar, for a total of 185 economies. improvement of 24 percentage points.Source: Doing Business database. Source: Doing Business database.

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70 DOING BUSINESS 2013 FIGURE 12.2 Property transfers have become faster in all regions TABLE 12.4 Who makes registering property Average time to register property (days) easy—and who does not? Procedures (number) OECD high income DB2013 DB2006 Fewest Most DB2013 Georgia 1 Algeria 10 Eastern Europe & Central Asia DB2006 Norway 1 Ethiopia 10 DB2013 Portugal Middle East & North Africa 1 Liberia 10 DB2006 Sweden 1 Ukraine 10 DB2013 Latin America & Caribbean Bahrain DB2006 2 Eritrea 11 DB2013 Belarus 2 Greece 11 Sub-Saharan Africa DB2006 New Zealand 2 Uganda 12 DB2013 Oman 2 Nigeria 13 East Asia & Pacific DB2006 Thailand 2 Brazil 14 DB2013 South Asia United Arab 2 Uzbekistan 15 DB2006 Emirates 0 20 40 60 80 100 120 140 Note: To ensure an accurate comparison, the ﬁgure shows data for the same sample of 170 practice economies for both Time (days) DB2006 (2005) and DB2013 (2012) and uses the regional classiﬁcations that apply in 2012. The economies added to the Fastest Slowest Doing Business sample after 2005 and therefore excluded here are The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar. DB2006 data are adjusted for any data revisions and Portugal 1 Angola 184 changes in methodology. Georgia 2 Puerto Rico (U.S.) 194 Source: Doing Business database. New Zealand 2 Suriname 197 Thailand 2 Guinea-Bissau 210 Lithuania 3 Bangladesh 245 FIGURE 12.3 Burkina Faso made transferring property faster and easier Norway 3 Afghanistan 250 Time to register property (days) Iceland 4 Togo 295 200 Time cut from 182 days to 59 Kyrgyz Republic 5 Brunei 298 Darussalam 160 Nepal 5 Haiti 301 Cost cut from 20.7% of the Taiwan, China 5 Kiribati 513 property value to 12.6% 120 Cost (% of property value) 80 Least Most Saudi Arabia 0.00 Côte d’Ivoire 13.9 40 Procedures cut from 8 to 4 Belarus 0.03 Guinea 14.2 Kiribati 0.04 Tonga 15.1 0 Slovak Republic 0.05 Maldives 16.1 1 2 3 4 5 6 7 8 Georgia 0.06 Chad 17.9 Procedures New Zealand 0.08 Cameroon 19.1 2004 2012 Kazakhstan 0.08 Senegal 20.2 Source: Doing Business database. Armenia 0.16 Nigeria 20.8 Russian 0.18 Congo, Rep. 21.3 Federation Among regions, Sub-Saharan Africa had economies making the biggest improve- Qatar 0.25 Syrian Arab 27.8 the largest number of property registra- ments in property registration since 2005 Republic tion reforms in the past 8 years. As a (table 12.3). By introducing a one-stop Source: Doing Business database. result, it also cut the cost to register shop for property issues and eliminat- property the most, though the regional ing the need to obtain a consent to the Worldwide, economies making effective average remains the highest. Among the transfer from the municipality, Burkina cuts in the number of procedures have biggest cost cutters was Angola, whose Faso cut the number of procedures from reviewed the efficiency of their property government slashed the property transfer 8 to 4 and the time from 182 days to 59 transfer process, then designed regula- cost from 11.5% of the property value to (ﬁgure 12.3). It also reduced the property tory reforms that centralized procedures 3.2% in 2011 by reducing both the trans- transfer tax 2 years in a row—from 15% of in a single agency—such as due diligence, fer tax, or sisa (from 10% to 2%), and the the property value to 10% in 2008, then signing of the contract, payment of taxes stamp duty (from 0.8% to 0.3%). to 8% in 2009. This helped bring down and registration. One is Italy, which cen- Thanks to effective efforts to increase ef- the total cost from 20.7% of the property tralized most procedures at the notary of- ﬁciency, Burkina Faso ranks among the 10 value in 2004 to 12.6% in 2012. ﬁce by introducing an electronic platform

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REGISTERING PROPERTY 71(Notartel). Now notaries can electroni-cally access the databases of all agenciesinvolved in property transfers.Economies making effective reductionsin time have reorganized the workﬂowof their registries, introduced time limits(taking into account the capacity ofthe institutions involved) or paired thecomputerization of their registries withthe introduction of efficient caseloadmanagement systems. Portugal madeits land registry one of the world’s mostefficient by introducing an effective 1-daytime limit for urgent transfers and a 10-day time limit for others (table 12.4).NOTEThis topic note was written byDariga Chukmaitova, Nuria de Ocaand Moussa Traoré.

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72 Getting credit Malaysia, South Africa and the United The United Nations Commission on TABLE 13.1 Where is getting credit easiest— Kingdom remain tied at the top of the International Trade Law (UNCITRAL), and where most difﬁcult? ranking on the ease of getting credit. in its Legislative Guide on Secured Easiest RANK Most difﬁcult RANK Transactions, emphasizes the importance Malaysia 1 Congo, Dem. 176 Between June 2011 and June Rep. the international community places 2012 Doing Business recorded 5 South Africa 1 Iraq 176 reforms strengthening legal rights on secured credit: “All businesses, United 1 Malta 176 of borrowers and lenders and 16 whether engaged in mining, lumbering, Kingdom improving credit information systems. agriculture, manufacturing, distributing, Australia 4 Syrian Arab 176 providing services or retailing, require Republic Cambodia improved the most in the working capital to operate, to grow and to Georgia 4 Djibouti 180 ease of getting credit in the past year. compete successfully in the marketplace. Hong Kong 4 Eritrea 180 SAR, China Guatemala is among the 10 It is well established that one of the most Latvia 4 Madagascar 180 economies advancing the furthest effective means of providing working Montenegro 4 São Tomé and 180 toward the frontier in regulatory capital to commercial enterprises is Príncipe practice in the area of getting credit through secured credit.”1 New Zealand 4 Tajikistan 180 since 2005. Of the rest, 5 are in Poland 4a Palau 185 Eastern Europe and Central Asia. In that spirit Doing Business measures 2 Note: Rankings on the ease of getting credit are based types of institutions and systems that can on the sum of the strength of legal rights index and the Among regions, Sub-Saharan Africa depth of credit information index. See the data notes for facilitate access to ﬁnance and improve details. Economies shown with the same number are tied had the most reforms strengthening in the ranking. its allocation: credit registries or credit legal rights of borrowers and lenders a. The United States is also tied in the ranking at 4. bureaus and the legal rights of borrowers in the past 8 years, while Eastern Source: Doing Business database. and lenders in secured transactions and Europe and Central Asia had the most bankruptcy laws. These institutions and improving credit information systems. systems work best together.2 Information available through credit registries and Among reforms strengthening legal sharing through credit registries or credit bureaus. rights in the past year, the most bureaus helps creditors assess the common feature was implementing creditworthiness of clients (though it is Rankings on the ease of getting credit collateral registries. Among those not the only risk assessment tool), while are based on the sum of the strength of improving credit information legal rights can facilitate the use of col- legal rights index and the depth of credit systems, the most common was lateral and the ability to enforce claims information index (table 13.1). guaranteeing by law borrowers’ right in the event of default. Creditors’ rights to inspect their own credit data. and insolvency regimes are fundamental WHO REFORMED IN GETTINGFor more information on good practices to a sound investment climate and can CREDIT IN 2011/12?and research related to getting credit, help promote commerce and economic In 2011/12, 5 economies improved ac-visit http://www.doingbusiness.org/data/ growth.3 cess to credit by reforming their securedexploretopics/getting-credit. For more transactions legislation or strengtheningon the methodology, see the section on These 2 types of institutions are mea- the rights of secured creditors duringgetting credit in the data notes. sured by 2 sets of indicators. One set bankruptcy proceedings (table 13.2). analyzes the legal framework for secured transactions by looking at how well col- Three of the 5 reforming economies lateral and bankruptcy laws facilitate are in Eastern Europe and Central Asia. lending. The other looks at the coverage, Considered one of the success stories of scope and quality of credit information collateral reform in the 1990s, Romania

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GETTING CREDIT 73 TABLE 13.2 Who strengthened legal rights of borrowers and lenders in 2011/12— TABLE 13.4 Who has the most legal rights and what did they do? for borrowers and lenders— Feature Economies Some highlights and who the least? Expanded range Georgia; Romania In Romania a new civil code repealed the previous legal Strength of legal rights index (0–10) of movable assets framework for secured transactions while maintaining Most Least that can be used as most of its modern principles. The new code introduced collateral the concept of hypothèque, allowing security interests in Australia 10 Eritrea 2 immovable as well as movable property. Hong Kong 10 São Tomé and 2 Created a uniﬁed Australia; Sri Lanka In Australia the Personal Property Securities Act 2009 SAR, China Príncipe registry for movable and associated regulations came into effect, and a single, Kyrgyz Republic 10 Timor-Leste 2 property national online registry began operating. The web-based registry allows creditors to conduct searches and register Latvia 10 Yemen, Rep. 2b security interests in personal property at any time.a Malaysia 10 Bolivia 1 Strengthened rights Kazakhstan In Kazakhstan a new law introduced changes to the Montenegro 10 Djibouti 1 of secured creditors regulation of the rehabilitation procedure under bankruptcy during reorganization legislation, specifying several conditions under which New Zealand 10 Palau 1 procedures secured creditors can apply for relief during the procedure. Singapore 10 Syrian Arab 1 a. Accessible at http://www.ppsr.gov.au. Republic Source: Doing Business database. South Africa 10 Venezuela, RB 1 United 10a West Bank and 1 Kingdom Gaza a. Kenya also has a score of 10 on the strength of legalwent a step further in harmonizing its se- proceedings. Georgia amended its civil rights index.cured transactions legislation. It adopted code to allow a security interest to extend b. Four other economies also have a score of 2 on the strength of legal rights index: Jordan, Madagascar,a new civil code, entering into force in to the products, proceeds and replace- Tajikistan and Uzbekistan.October 2011, that repealed the previous ments of an asset used as collateral. Source: Doing Business database.legal framework for secured transactions.Inspired in part by the law of the Canadian Sixteen economies improved their Cambodia established its ﬁrst privateprovince of Quebec, the new code credit reporting system in the past year credit bureau, which began operatingintroduces the concept of hypothèque (table 13.3); 1 economy made access in March 2012. The bureau collects andto cover security interests in movable to credit information more difficult. distributes both positive and negativeand immovable assets. While positive Seven of these economies—Costa Rica, credit information on individuals andoverall, this reform also rendered out- Ethiopia, Mongolia, Montenegro, Oman, includes all loans in its database, regard-of-court enforcement procedures more Uzbekistan, and West Bank and Gaza— less of size. In addition, a regulation onformalistic. Kazakhstan introduced new introduced new laws or regulations guar- credit information sharing issued in Maygrounds for relief from an automatic stay anteeing the right of borrowers to inspect 2011 guarantees the right of borrowers tofor secured creditors during rehabilitation their personal data. inspect their own data. The country made the biggest improvement in the ease of TABLE 13.3 Who improved the sharing of credit information in 2011/12—and what did they do? getting credit in 2011/12. Feature Economies Some highlights Guaranteed by law Costa Rica; In West Bank and Gaza a new ordinance gave borrowers Mauritius also improved access to credit borrowers’ right to Ethiopia; Mongolia; the right to inspect their credit data. access data Montenegro; Oman; information in the past year. Its credit Uzbekistan; West Bank and Gaza registry now reports both positive and Improved regulatory El Salvador; New Zealand adopted a legal framework for expanding the negative data and collects payment infor- framework for sharing Hungary; New set of information collected by credit bureaus. mation from retailers. credit information Zealand Provided online Bangladesh; Ethiopia introduced a new online system for sharing credit access to data at Ethiopia; Syrian Arab information. WHAT HAVE WE LEARNED credit registry or Republic bureau FROM 8 YEARS OF DATA? Expanded set of Ethiopia; Mauritius In Mauritius the public credit registry developed a new Several economies have incorporated information collected format for credit reports that includes on-time payments in credit registry or and unpaid installments and also began collecting data good practices in their legal framework bureau from retailers. for secured transactions with the aim of Created a new credit Cambodia; Cambodia’s ﬁrst private credit bureau started operations, improving access to ﬁnance for small and registry or bureau Sierra Leone covering more than 1.1 million individuals. medium-size enterprises. Such reforms Lowered or Algeria Algeria eliminated the minimum threshold for loans eliminated threshold included in the database. are usually reﬂected in a change in score for loans reported on the strength of legal rights index (table Source: Doing Business database. 13.4).

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74 DOING BUSINESS 2013 FIGURE 13.1 Sub-Saharan Africa leads in number of legal rights reforms TABLE 13.5 Who has narrowed the distance Number of Doing Business reforms strengthening legal rights of borrowers and lenders by to frontier in getting credit the Doing Business report year most since 2005? Improvement in Sub-Saharan Africa distance to frontier (46 economies) 1 1 2 1 17a Most improved (percentage points) Eastern Europe & Central Asia DB2006 (24 economies) 3 3 2 1 1 2 1 3 Cambodia 69 East Asia & Pacific DB2007 (0Æ69) (24 economies) 1 3 4 2 2 1 DB2008 Georgia 63 OECD high income 2 3 1 2 1 1 DB2009 (31Æ94) (31 economies) DB2010 Rwanda 56 Latin America & Caribbean (33 economies) 1 1 2 3 (25Æ81) DB2011 South Asia Croatia 44 (8 economies) 1 1 1 1 DB2012 (31Æ75) Middle East & North Africa DB2013 (19 economies) 1 Ghana 43 (38Æ81) 0 5 10 15 20 25 Guatemala 38 (50Æ88) Note: An economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2006 (2005) includes 174 economies. The sample for DB2013 (2012) also includes The Bahamas, Bahrain, Barbados, Brunei Kyrgyz Republic 38 Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar, for a total of 185 economies. (50Æ88) a. During the period covered by Doing Business 2012, amendments to the Uniform Act on Secured Transactions strengthened Kazakhstan 37 legal rights in the 16 member economies of the Organization for the Harmonization of Business Law in Africa (OHADA). (19Æ56) Source: Doing Business database. India 31 (50Æ81) Russian Federation 31a One example is Guatemala, which en- example, the new Uniform Act on Secured (19Æ50) hanced its secured transactions regime Transactions adopted by the Organization Note: The distance to frontier measure shows how far by issuing a decree in 2007 that broad- for the Harmonization of Business Law in on average an economy is from the best performance achieved by any economy on each Doing Business ened the range of movable assets that Africa (OHADA) introduced a novel pro- indicator since 2005—in this case for the getting can be used as collateral and created a credit indicators. The measure is normalized to range vision allowing out-of-court enforcement between 0 and 100, with 100 representing the best registry for movable property that began between “professionals.” performance (the frontier). The data refer to the 174 economies included in Doing Business 2006 (2005). operating in January 2009. In addition, Eleven economies were added in subsequent years. The Guatemala strengthened its credit infor- Worldwide, creating a collateral registry ﬁrst column lists the top 10 most improved economies in was among the most common features order; the second shows the absolute improvement in the mation system in 2009 through a decree distance to frontier between 2005 and 2012. guaranteeing the right of borrowers to in- of legal rights reforms. While there are a. Afghanistan, Mauritius, the Solomon Islands, Uganda spect their own data in any public institu- different types of collateral registries, and Zambia also have an improvement of 31 percentage points. tion. Thanks to these changes, Guatemala notice-based registries are widely con- Source: Doing Business database. ranks among the 10 economies advancing sidered the most effective.4 Since 2005 a the furthest toward the frontier in regula- number of economies have tried to unify tory practice in the area of getting credit the information on collateral under some sort of centralized registry: Australia, 146 economies with a credit reporting since 2005 (table 13.5). Chile, France, Georgia, Ghana, Guatemala, system as recorded by Doing Business Guatemala is far from being the only ex- Honduras, the Marshall Islands, Mexico, (ﬁgure 13.3). Eastern Europe and Central ample. In the past 8 years Doing Business the Federated States of Micronesia, Peru, Asia had the largest share of economies recorded 72 reforms strengthening legal Rwanda, the Solomon Islands, Sri Lanka, with improvements: 85% implemented rights of borrowers and lenders in 58 Vanuatu and Vietnam. Some of these at least 1 such reform, for a total of 43. economies. Sub-Saharan Africa and East new registries, accompanied by legal And 14 of the 18 economies with 100% Asia and the Paciﬁc are among the regions reform, have proved to be a real success coverage of borrowers are in the OECD with the most such reforms (ﬁgure 13.1). story. One example is Mexico’s registry, high-income group (table 13.6). which began operating in September The data also reﬂect a difference in 2010. By April 2012 the number of ﬁlings The efforts to improve credit report- focus. Governments in East Asia and the had increased by 4 times, and the secured ing should be no surprise: responsible Paciﬁc focused more on aspects relating amounts registered totaled $172 billion.5 ﬁnance is much in the news these days. to the creation and publicity of secu- But since the onset of the ﬁnancial crisis rity interests in movable property (ﬁgure The past 8 years also saw 171 in 2008, consumer protection issues 13.2). Those in Sub-Saharan Africa gave regulatory reforms to improve credit have also received attention worldwide. greater emphasis to aspects relating to information systems, implemented in In the past year, for the ﬁrst time since the enforcement of security interests. For 99 economies—more than half of the 2005, the most common feature of credit

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GETTING CREDIT 75information reforms as recorded by Doing In the past 8 years 30 economies adopted TABLE 13.6 Who has the most creditBusiness was guaranteeing by law borrow- legislation providing borrowers with the information—and who right to access data held on them. Efforts the least?ers’ right to access their data. The main Depth of credit information index (0–6)objective is to balance the ability of in- also focused on expanding the sources of information collected by credit registries Most Leaststitutions to exchange credit information Argentina 6 Benin 1with the protection of individuals’ right to or bureaus: 28 credit information reforms Canada 6 Burkina Faso 1privacy. were aimed at having these entities Germany 6 Burundi 1 distribute both positive and negative Japan 6 Djibouti 1Today 104 economies guarantee by law information, collect alternative data from Korea, Rep. 6 Guinea-Bissau 1consumers’ right to access their credit utilities or retailers or report historical Lithuania 6 Liberia 1information. In 72 of them the law guar- information (ﬁgure 13.4). In 2005 credit Malaysia 6 Mauritania 1antees this access at no cost.6 Among the registries and credit bureaus in 42 econo- Mexico 6 Niger 1brest, consumers can obtain a credit report mies around the world included credit in- United 6 Guinea 0at no cost in 9 economies in practice, formation from sources other than banks. Kingdomat little cost in 7 economies ($2.60 on Today those in 55 economies do so. United States 6a Madagascar 0average) and at a relatively high cost in 14 The other main focus was expanding theeconomies ($13.30 on average). In 100 of Borrowers covered by credit registries or bureaus coverage of borrowers, such as by lower- (% of adults)the 146 economies with a credit reporting ing or eliminating the minimum threshold Most Leastsystem the law guarantees the right of for the loans included in a credit bureau or Argentina 100 Bangladesh 0.82consumers to dispute erroneous data.7 registry’s database. Where these thresh- Australia 100 Haiti 0.70And in 55 economies regulations require olds are high, retail and small business Canada 100 Sierra Leone 0.68the bureau or registry to either ﬂag the loans are more likely to be excluded. In Iceland 100 Mauritania 0.53disputed data or block their distribution.8 2005, 79 economies had a minimum loan Ireland 100 Nepal 0.47 New Zealand 100 Burundi 0.26 Norway 100 Djibouti 0.23FIGURE 13.2 East Asia and the Paciﬁc made the biggest improvement in laws on the creation of Sweden 100 Madagascar 0.10 security interests in movable property United 100 Ethiopia 0.07 Regional averages in strength of legal rights Kingdom United States 100c Guinea 0.01 Note: The rankings on borrower coverage reﬂected in OECD high income DB2013 the table include only economies with a credit registry or DB2006 credit bureau (146 in total). Another 39 economies have no credit registry or bureau and therefore no coverage East Asia & Pacific DB2013 (see http://www.doingbusiness.org). See the data notes DB2006 for details. a. Twenty other economies also have a score of 6 on DB2013 the depth of credit information index: Armenia, Austria, Eastern Europe & Central Asia Bolivia, Costa Rica, the Dominican Republic, Ecuador, DB2006 Egypt, El Salvador, Georgia, Guatemala, Honduras, FYR DB2013 Macedonia, Panama, Paraguay, Peru, Poland, Rwanda, South Asia Saudi Arabia, South Africa and Uruguay. DB2006 b. Four other economies also have a score of 1 on the depth of credit information index: Côte d’Ivoire, Mali, Sub-Saharan Africa DB2013 DB2006 Senegal and Togo. c. Eight other economies also have coverage of 100% of the adult population: Croatia, Germany, Israel, Italy, Latin America & Caribbean DB2013 DB2006 Japan, Korea, Serbia and Uruguay. Source: Doing Business database. Middle East & North Africa DB2013 DB2006 0 1 2 3 4 5 6 7 Creation of Registration of Enforcement of security interest (0–5) security interest (0–1) security interest (0–4)Note: To ensure an accurate comparison, the ﬁgure shows data for the same sample of 174 economies for both DB2006(2005) and DB2013 (2012) and uses the regional classiﬁcations that apply in 2012. The economies added to the DoingBusiness sample after 2005 and therefore excluded here are The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus,Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar. DB2006 data are adjusted for any data revisions and changes inmethodology. Creation of security interest refers to the ﬁrst 5 components of the strength of legal rights index. Registration ofsecurity interest refers to the component relating to the existence of a collateral registry. Enforcement of security interest refersto the last 4 components. See the data notes for details.Source: Doing Business database.

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76 DOING BUSINESS 2013 FIGURE 13.3 Eastern Europe and Central Asia leads in number of credit information reforms threshold below 1% of income per capita Number of Doing Business reforms improving credit information systems by Doing Business (including those in which loans of all sizes report year are reported). Today 123 economies do. Eastern Europe & Central Asia 9 4 4 10 7 3 4 2 DB2006 (24 economies) DB2007 An encouraging trend over the past 8 Sub-Saharan Africa (46 economies) 4 12 8 4 4 6 3 DB2008 years has been the establishment of new Middle East & North Africa 3 2 5 5 3 5 4 4 DB2009 credit bureaus or registries in economies (19 economies) Latin America & Caribbean DB2010 that previously had none—25 in total, (33 economies) 3 7 2 4 1 3 2 DB2011 mainly in Eastern Europe and Central Asia. East Asia & Pacific (24 economies) 2 2 1 2 1 3 3 2 DB2012 Credit information is still hardly shared in OECD high income DB2013 Sub-Saharan Africa, despite the pickup in (31 economies) 5 4 2 212 South Asia efforts to develop credit information sys- (8 economies) 3 1 2 1 2 11 tems starting in 2008. Since then Ghana, 0 15 30 45 Liberia, Rwanda, Sierra Leone, Uganda Note: An economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2006 and Zambia have established new credit (2005) includes 123 economies. The sample for DB2013 (2012) includes a total of 146 economies. Source: Doing Business database. reporting systems. In East Asia and the Paciﬁc 10 of 24 economies still have no credit bureau or registry. But things are improving. Brunei Darussalam, Lao PDR, FIGURE 13.4 Guaranteeing by law borrowers’ right to access data was the biggest focus of credit information reform worldwide in the past 8 years Samoa, the Solomon Islands, Tonga and Regional averages in depth of credit information Vanuatu are all working to get their credit reporting systems operating.9 DB2013 Latin America & Caribbean DB2006 NOTES DB2013 Eastern Europe & Central Asia This topic note was written by Santiago Croci DB2006 Downes, Hayane Chang Dahmen and Joanna DB2013 Nasr. OECD high income DB2006 1. UNCITRAL 2007, p. 1. DB2013 2. Djankov, McLiesh and Shleifer 2007. East Asia & Pacific DB2006 3. World Bank 2011b. DB2013 4. Alvarez de la Campa, Croci Downes and Middle East & North Africa DB2006 Tirelli Hennig 2012. 5. Estimates were provided by the Mexican DB2013 South Asia government. DB2006 6. No data are available for 2 economies. DB2013 7. No data are available for 7 economies. Sub-Saharan Africa DB2006 0 2 4 6 8. No data are available for 13 economies. 9. As of June 1, 2012, the credit bureaus Who is covered (0–2) Type of information (0–3) Consumers’ right (0–1) in Tonga and Vanuatu had loaded the Note: To ensure an accurate comparison, the ﬁgure shows data for the same sample of 123 economies for both DB2006 information into their systems but the (2005) and DB2013 (2012) and uses the regional classiﬁcations that apply in 2012. DB2006 data are adjusted for any data databases were not yet accessible to revisions and changes in methodology. Who is covered refers to whether both individuals and ﬁrms are covered by a bureau banks. or registry and whether loans below 1% of income per capita are included. Type of information refers to the availability of information from retailers or utilities, distribution of positive and negative information and availability of historical data. Consumers’ right refers to whether the law guarantees borrowers’ right to inspect their own data. Source: Doing Business database.

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77Protecting investorsCorporations are instruments of en- innovate, diversify and compete. A recent  New Zealand has the strongesttrepreneurship and growth. They can study shows that in economies with minority investor protections inalso be abused for personal gain. In July stronger investor protections, invest- related-party transactions, for the2012 authorities in Korea imposed a $30 ment in ﬁrms is less sensitive to ﬁnancial eighth year in a row.million ﬁne on SK Group, the country’s constraints and leads to greater growth in  From June 2011 to June 2012 Doingthird-largest conglomerate, for illicit revenue and proﬁtability.2 Another study Business recorded 13 legal changesrelated-party transactions. The transac- shows that regulating conﬂicts of interest strengthening the protections oftions were priced signiﬁcantly above is essential to successfully empowering minority investors.market averages and allegedly allowed minority shareholders.3the group’s founder to misappropriate  Kosovo made the biggest$87 million. The group’s market capi- New Zealand provides the strongest improvement in the strength oftalization declined sharply as a result.1 minority investor protections as mea- investor protections in the past year.Korea’s strong institutions and extensive sured by Doing Business, ranking highestdisclosure requirements played an essen- in this area for the eighth year in a row  Tajikistan has advanced thetial part in addressing this situation and (table 14.1). furthest toward the frontier inprotecting minority investors. regulatory practice in protecting WHO IMPROVED INVESTOR investors since 2005.Doing Business measures the strength of PROTECTIONS IN 2011/12?  Improving disclosure was theminority shareholder protections against In the past year 13 economies strength- most common feature of investordirectors’ misuse of corporate assets for ened investor protections as measured by protection reforms in the past 8personal gain. The indicators distinguish Doing Business. OECD high-income econ- years.3 dimensions of investor protections:approval and transparency of related- omies, with 4 legal changes, continue to  Among regions, Eastern Europeparty transactions (extent of disclosure and Central Asia has strengthenedindex), liability of company directors for TABLE 14.1 Where are investors most investor protections the most sinceself-dealing (extent of director liability protected—and where least? 2005—and is quickly catchingindex) and shareholders’ ability to obtain Most protected RANK Least protected RANK up with OECD high-incomecorporate documents before and dur- New Zealand 1 Haiti 176 economies.ing litigation (ease of shareholder suits Singapore 2 Gambia, The 177 For more information on goodindex). The standard case study assumes Hong Kong 3 Guinea 177 practices and research related to SAR, Chinaa related-party transaction between protecting investors, visit http:// Canada 4 Micronesia, 177 www.doingbusiness.org/data/Company A (“Buyer”) and Company Fed. Sts.B (“Seller”) where “Mr. James” is the exploretopics/protecting-investors. Malaysia 4 Palau 177 For more on the methodology, see thecontrolling shareholder of both Buyer and Colombia 6 Djibouti 181 section on protecting investors in theSeller and a member of both their boards Ireland 6 Venezuela, RB 181 data notes.of directors. The transaction is overpriced Israel 6 Suriname 183and causes damages to Buyer. United States 6 Lao PDR 184 United 10 Afghanistan 185Protecting minority investors matters for Kingdomcompanies. Without adequate regula- Note: Rankings are based on the strength of investor protection index. See the data notes for details.tions, equity markets fail to develop and Economies shown with the same number are tied in thebanks become the only source of the ranking. Source: Doing Business database.ﬁnance that companies need to grow,

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78 DOING BUSINESS 2013 FIGURE 14.1 Kosovo’s new Law on Business TABLE 14.2 Who strengthened investor protections in 2011/12—and what did they do? Organizations strengthened Feature Economies Some highlights investor protections Made it easier to sue Armenia; Republic Korea clariﬁed directors’ duties in its commercial code. Now 6 6 directors of Korea; Kosovo; negligent directors can be held liable for damages caused Lesotho; Peru; by prejudicial related-party transactions. Taiwan, China; Tajikistan Increased disclosure Armenia; Greece; Lesotho enacted a new company law that requires requirements Islamic Republic company directors to disclose to the board the full extent 3 3 of Iran; Kosovo; of any conﬂict of interest they may have relating to a 2 Lesotho; Mongolia; proposed transaction. Taiwan, China Regulated approval Armenia; Kosovo; Kosovo amended its Law on Business Organizations. Now Extent of Extent of Ease of of related-party Netherlands; Peru; only disinterested shareholders can approve related-party disclosure director shareholder transactions Slovenia; Taiwan, transactions. index liability index suits index China (0–10) (0–10) (0–10) Allowed the rescission Kosovo; Moldova Moldova amended its law on joint stock companies. of prejudicial related- Shareholders can now petition the court for a rescission of 2011 2012 party transactions transactions approved despite major conﬂicts of interest when such transactions cause damages to the company. Source: Doing Business database. Source: Doing Business database. provide the strongest protections. Eastern Continuing a trend in Sub-Saharan Africa Business, 49% improved the extent of Europe and Central Asia, also with 4, re- of upgrading company law, Lesotho disclosure index. But OECD high-income mains the most improved region and the adopted a new one setting out duties economies had a much higher share that most active in making legal changes, with of care, diligence and skill for directors. did so, at 78%, followed by the Middle East 24 recorded in 16 economies since 2005. Breach of these duties constitutes a cause and North Africa with 60% and Eastern of action for shareholders (table 14.2). Europe and Central Asia with 54%. In Sub- Kosovo improved minority shareholder Saharan Africa the priority was increasing protections the most in the past year, WHAT HAVE WE LEARNED director liability. In East Asia and the Paciﬁc through a comprehensive revision of its FROM 8 YEARS OF DATA? and Latin America and the Caribbean the Law on Business Organizations (ﬁgure In the past 8 years 68% of economies in approach was more balanced. 14.1). The amended law requires share- Eastern Europe and Central Asia imple- holder approval of related-party transac- mented at least 1 reform strengthening While many economies have strength- tions and mandates greater disclosure investor protections (ﬁgure 14.2). Among ened investor protections, Tajikistan, both by directors to their board and by OECD high-income economies 48% did, Albania and Rwanda have made the companies in their annual reports. In ad- and in East Asia and the Paciﬁc and the biggest improvements since 2005 (table dition, the law allows shareholders to pe- Middle East and North Africa 33% did. 14.3). Two of them did so through one tition a judge for rescission of a prejudicial Of all these reforms captured by Doing major overhaul of their company law, related-party transaction and clariﬁes the liability of directors. If found liable, direc- FIGURE 14.2 Eastern Europe and Central Asia still leading in number of investor protection reforms tors must now pay damages and disgorge Number of Doing Business reforms strengthening investor protections by Doing Business any proﬁt made from the transaction. report year Eastern Europe & Central Asia DB2006 Economies in other regions were active (24 economies) 1 1 2 5 3 3 5 4 as well. In Greece the Hellenic Capital OECD high income DB2007 (31 economies) 5 6 4 2 1 1 4 DB2008 Market Commission issued a circular East Asia & Pacific (24 economies) 5 2 2 1 3 2 2 DB2009 clarifying the concept of material transac- Latin America & Caribbean DB2010 tions for purposes of disclosure by listed (33 economies) 2 3 1 2 1 2 1 DB2011 companies—helping to instill more trans- Middle East & North Africa (19 economies) 1 3 3 1 1 1 DB2012 parency in an economy looking to restore Sub-Saharan Africa DB2013 (46 economies) 1 1 1 3 1 1 1 conﬁdence in its market. South Asia (8 economies) 1 1 1 Peru now requires that the terms of 0 5 10 15 20 25 transactions between interested parties be Note: An economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2006 (2005) includes 174 economies. The sample for DB2013 (2012) also includes The Bahamas, Bahrain, Barbados, Brunei reviewed by an independent external audi- Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar, for a total of 185 economies. tor certiﬁed by the securities commission. Source: Doing Business database.

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PROTECTING INVESTORS 79FIGURE 14.3 Strongest investor protections in OECD high-income economies TABLE 14.3 Who has narrowed the distance Regional averages in protecting investors to frontier in protecting investors the most since 2005? OECD high income DB2013 Improvement in DB2006 distance to frontier Most improved (percentage points) DB2013 Eastern Europe & Central Asia Tajikistan 52 DB2006 (17Æ69) DB2013 Albania 48 East Asia & Pacific DB2006 (29Æ77 ) Rwanda 38 DB2013 South Asia (29Æ67) DB2006 Georgia 31 DB2013 ( 41Æ72) Latin America & Caribbean DB2006 Burundi 29 (34Æ62) DB2013 Middle East & North Africa Tunisia 28 DB2006 (35Æ63) DB2013 Colombia 26 Sub-Saharan Africa DB2006 (44Æ69) 0 10 20 Azerbaijan 25 (57Æ82) Extent of Extent of director Ease of shareholder disclosure index (0–10) liability index (0–10) suits index (0–10) Kazakhstan 25 (57Æ82)Note: To ensure an accurate comparison, the ﬁgure shows data for the same sample of 174 economies for both DB2006 Mexico 25a(2005) and DB2013 (2012) and uses the regional classiﬁcations that apply in 2012. The economies added to the Doing (37Æ63)Business sample after 2005 and therefore excluded here are The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus, Note: The distance to frontier measure shows how farKosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar. DB2006 data are adjusted for any data revisions and changes on average an economy is from the best performancein methodology. achieved by any economy on each Doing BusinessSource: Doing Business database. indicator since 2005—in this case for the protecting investors indicators. The measure is normalized to range between 0 and 100, with 100 representing the bestAlbania in 2008 and Rwanda in 2009. directors’ duties (as in Taiwan, China, performance (the frontier). The data refer to the 174 economies included in Doing Business 2006 (2005).Tajikistan achieved similar results by and in Thailand). Eleven economies were added in subsequent years. Theamending its law incrementally—in ﬁrst column lists the top 10 most improved economies in order; the second shows the absolute improvement in the2007, in 2009 (twice) and in 2011. Investor protection reforms have distance to frontier between 2005 and 2012. been sparse in Latin America and the a. Swaziland also has an improvement of 25 percentage points.OECD high-income economies may have Caribbean, with Chile, Colombia and Source: Doing Business database.the strongest investor protections as Mexico among the few economiesmeasured by Doing Business, but Eastern implementing them. In the MiddleEurope and Central Asia is quickly catch- East and North Africa, despite some of the total. But in the past year, for theing up, having passed East Asia and the improvements (as in Morocco and ﬁrst time, the most common feature wasPaciﬁc in 2007 (ﬁgure 14.3). Policy makers Saudi Arabia), protections are often increasing director liability (accounting forin the region have emphasized stricter dis- weak because of limited access to 8 of the 13 reforms).closure requirements and better standards corporate information during litigation.for company directors. South Asia has been the least active Overall, smart, comprehensive regulations in strengthening investor protections. have had the strongest lasting impactSub-Saharan Africa has had some of the Over the past 8 years Doing Business (table 14.4). Economies undertaking amost comprehensive investor protection recorded 3 investor protection reforms complete overhaul of their corporate,reforms. Besides Lesotho, such econo- among the region’s 8 economies—in securities and civil procedure laws—mies as Burundi and Rwanda have also India, Pakistan and Sri Lanka. including Albania, Burundi, Kosovo,updated their company laws following Mexico, Rwanda, Swaziland, Tajikistanglobal good practices. East Asia and the Improving disclosure was the most com- and Thailand—have improved the mostPaciﬁc has focused mostly on strength- mon feature of investor protection reforms on the strength of investor protections asening disclosure requirements and in the past 8 years, accounting for 46 measured by Doing Business.

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81Paying taxesJean-Baptiste Colbert, French philoso- WHO REFORMED IN PAYING  Firms in the United Arab Emiratespher and minister of ﬁnance to King Louis TAXES IN 2011/12? face the lightest administrativeXIV, once remarked that “the art of taxa- From June 2011 to June 2012 Doing burden in paying taxes. They musttion consists in so plucking the goose as Business recorded 31 reforms making make only 4 payments a year andto obtain the largest possible amount it easier or less costly for firms to pay spend 12 hours doing so.of feathers with the smallest possible taxes (table 15.2). Sixteen economies  From June 2011 to June 2012 Doingamount of hissing.” How taxes are col- mandated or enhanced electronic filing, Business recorded 31 reformslected and paid has changed a great deal eliminating the need for 196 separate making it easier and less costly forsince then. But governments still face the tax payments and reducing compli- companies to comply with taxes.challenge of maximizing revenue collec- ance time by 134 days (1,070 hours)tion while minimizing distortions.  Liberia made the biggest in total. In Uruguay small and medium- improvement in the ease of paying size companies can now file and payDoing Business records the taxes and taxes in the past year. corporate income tax, value added taxmandatory contributions that a medium- and capital tax online. This option was  Belarus has advanced the mostsize company must pay in a given year available only for large taxpayers until toward the frontier in regulatoryand also measures the administrative 2011. Seven other economies imple- practice in paying taxes since 2004.burden of paying taxes and contributions. mented electronic filing for the first  The most common feature of taxIt does this with 3 indicators: number of time, raising the number offering this reforms in the past 8 years was topayments, time and total tax rate for the option from 67 in 2010 to 74 in 2011.3 reduce proﬁt tax rates, often in theDoing Business case study ﬁrm. The num- Thanks to improvements in electronic context of parallel efforts to improveber of payments indicates the frequency systems for filing and paying social tax compliance. But in the past 2with which the company has to ﬁle and security contributions, Saudi Arabia years more economies focused onpay different types of taxes and contribu-tions, adjusted for the way in which those introducing electronic systems.ﬁlings and payments are made.1 The time TABLE 15.1 Where is paying taxes easiest—  Among regions, Eastern Europeindicator captures the number of hours it and where most difﬁcult? and Central Asia had the biggesttakes to prepare, ﬁle and pay 3 major types Easiest RANK Most difﬁcult RANK improvement in the ease of payingof taxes: proﬁt taxes, consumption taxes, United Arab 1 Cameroon 176 taxes in the past 8 years. Emiratesand labor taxes and mandatory contribu- Qatar 2 Mauritania 177 For more information on goodtions. The total tax rate measures the tax Saudi Arabia 3 Senegal 178 practices and research relatedcost (as a percentage of proﬁt) borne by to paying taxes, visit http:// Hong Kong 4 Gambia, The 179the standard ﬁrm. The indicators do not www.doingbusiness.org/data/ SAR, Chinameasure the ﬁscal health of economies, Singapore exploretopics/paying-taxes. For more 5 Bolivia 180the macroeconomic conditions under on the methodology, see the section on Ireland 6 Central African 181which governments collect revenue or Republic paying taxes in the data notes.the provision of public services supported Bahrain 7 Congo, Rep. 182by taxation. The ranking on the ease of Canada 8 Guinea 183paying taxes is the simple average of the Kiribati 9 Chad 184percentile rankings on its component Oman 10 Venezuela, RB 185indicators, with a threshold applied to the Note: Rankings are the average of the economy’stotal tax rate (table 15.1).2 rankings on the number of payments, time and total tax rate, with a threshold imposed on the total tax rate. See the data notes for details. Source: Doing Business database.

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82 DOING BUSINESS 2013 TABLE 15.2 Who made paying taxes easier and lowered the tax burden in 2011/12— TABLE 15.3 Who makes paying taxes easy and what did they do? and who does not—and where Feature Economies Some highlights is the total tax rate highest? Introduced or enhanced Albania; Belarus; Bosnia and Ukraine introduced an online ﬁling Payments (number per year) electronic systems Herzegovina; Costa Rica; Czech and payment system and made its use Fewest Most Republic; Georgia; Germany; Kenya; mandatory for medium-size and large Panama; Russian Federation; Saudi enterprises. Hong Kong 3 Antigua and 57 Arabia; Slovak Republic; Slovenia; SAR, China Barbuda Ukraine; United Arab Emirates; Saudi Arabia 3 Guinea 58 Uruguay Norway 4 Senegal 59 Reduced proﬁt tax rate Belarus; Brunei Darussalam; Fiji; The United Kingdom reduced 2 by 2 percentage points Japan; Republic of Korea; Lao PDR; corporate income tax rates: the main Qatar 4 Panama 60 or more Liberia; Mali; Puerto Rico (U.S.); rate from 28% to 26% and the small- Sweden 4 Congo, Rep. 61 Slovenia; Thailand; United Kingdom company rate from 21% to 20%. United Arab 4 Sri Lanka 61 Merged or eliminated Albania; Hungary; Liberia Liberia abolished the turnover tax. Emirates taxes other than proﬁt tax Georgia 5 Côte d’Ivoire 62 Simpliﬁed tax compliance Jamaica; Mali; Panama; Poland Jamaica introduced joint ﬁling and process payment of all 5 types of social security Singapore 5 Serbia 66 contributions that ﬁrms must make. Chile 6 Tajikistan 69 Reduced labor taxes and Croatia Croatia made paying taxes less costly by Malta 6 Venezuela, RB 71 mandatory contributions reducing health insurance contributions. Introduced change in Swaziland Swaziland introduced value added tax cascading sales tax Time (hours per year) to replace its cascading sales tax. Source: Doing Business database. Fastest Slowest United Arab 12 Cameroon 654 Emirates Bahrain 36 Ecuador 654 this year ranks among the 10 economies Eleven economies introduced new Qatar 48 Senegal 666 with the fewest payments and lowest taxes (Cambodia, Costa Rica, Cyprus, Bahamas, The 58 Mauritania 696 tax compliance time (table 15.3). El Salvador, Ethiopia, Japan, Malawi, Luxembourg 59 Chad 732 Maldives, Mali, Nigeria and República Electronic systems for ﬁling and paying Oman 62 Venezuela, RB 792 Bolivariana de Venezuela). Others taxes eliminate excessive paperwork Switzerland 63 Vietnam 872 increased proﬁt or income tax rates and interaction with tax officers. They Saudi Arabia 72 Nigeria 956 (Botswana, the Dominican Republic and can reduce the time businesses spend Seychelles 76 Bolivia 1,025 Moldova)5 or social security contribu- on complying with tax laws, increase tax Hong Kong 78 Brazil 2,600 tions (Hungary and Poland). SAR, China compliance and reduce the cost of rev- enue administration.4 But achieving these Total tax rate (% of proﬁt) WHAT HAVE WE LEARNED results requires effective implementation Highest FROM 8 YEARS OF DATA? and high-quality security systems. Colombia 74.8 Since 2005 Doing Business has recorded Palau 75.7 Twelve economies reduced proﬁt 296 tax reforms in 142 economies Bolivia 83.4 tax rates in 2011/12: 6 high-income (ﬁgure 15.1). Some of these reforms Tajikistan 84.5 economies (Brunei Darussalam, Japan, introduced online ﬁling, added in 29 Eritrea 84.5 Korea, Puerto Rico [territory of the economies in the past 8 years. These Uzbekistan 98.5 United States], Slovenia and the United and other improvements to simplify tax Argentina 108.3a Kingdom), 4 middle-income ones compliance reduced the time required to Comoros 217.9a (Belarus, Fiji, Lao PDR and Thailand) and comply with the 3 major taxes measured Gambia, The 283.5a 2 low-income ones (Liberia and Mali). (proﬁt, labor and consumption taxes) by Congo, Dem. Rep. 339.7a Reductions in proﬁt tax rates are often 54 hours on average, and the number Note: The indicator on payments is adjusted for the combined with efforts to widen the tax of payments by 7. Eastern Europe and possibility of electronic or joint ﬁling and payment when used by the majority of ﬁrms in an economy. See the data base by removing exemptions and with Central Asia had the biggest improve- notes for more details. increases in the rates of other taxes, ment, with the time reduced by 181 a. As a result of assumptions about the proﬁt margin used to standardize the ﬁnancial statements of the case study such as value added tax (VAT). Liberia hours and the number of payments by company, in 4 economies the amount of taxes due would improved the most in the ease of paying 24 (ﬁgure 15.2). Upper-middle-income exceed the proﬁt of the company. To be able to comply with its tax obligations in these economies, the company taxes. It reduced the corporate income economies have advanced the most to- would therefore have to charge more for its products and tax rate from 35% to 25% and abolished ward the frontier in regulatory practice in generate a higher proﬁt. The methodology does not allow for price adjustments and assumes a standard cost markup the turnover tax. The total tax rate fell paying taxes, followed by lower-middle- of 120%. See the data notes for more details. from 43.7% of proﬁt to 27.4%. income economies (ﬁgure 15.3). Source: Doing Business database.

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PAYING TAXES 83FIGURE 15.1 Tax reforms implemented by more than 75% of economies in the past 8 years FIGURE 15.3 Middle-income economies have advanced the most toward the Number of Doing Business reforms making it easier to pay taxes by Doing Business report year frontier in paying taxes Average distance to frontier (percentage points) Eastern Europe & Central Asia DB2006 (24 economies) 8 11 10 9 9 11 7 7 100 OECD high income DB2007 (31 economies) 9 7 6 8 9 7 7 9 DB2008 Sub-Saharan Africa 80 (46 economies) 3 8 8 6 11 11 7 4 DB2009 Latin America & Caribbean DB2010 (33 economies) 4 5 5 8 6 2 7 5 60 DB2011 East Asia & Pacific (24 economies) 3 5 9 8 4 DB2012 Middle East & North Africa DB2013 40 (19 economies) 1 4 3 2 6 232 South Asia (8 economies) 4 2112 20 0 10 20 30 40 50 60 70 80Note: An economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2006 0(2004) includes 174 economies. The sample for DB2013 (2011) also includes The Bahamas, Bahrain, Barbados, Brunei Low Lower Upper HighDarussalam, Cyprus, Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar, for a total of 185 economies. income middle middle income income incomeSource: Doing Business database. 2011 2004Besides lessening the administrative which replaced the cascading sales tax.6burden of taxes, many economies also re- Burundi, Djibouti, Mozambique, Sierra Note: The distance to frontier measure shows how far onduced tax rates, often from relatively high Leone and Swaziland all introduced VAT average an economy is from the best performance achieved by any economy on each Doing Business indicator—inlevels and with complementary efforts systems. In Sierra Leone tax revenue re- this case for the paying taxes indicators since 2004. Theto improve tax compliance. Sub-Saharan mained relatively stable as a percentage measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). TheAfrica had the largest reduction in the of GDP, rising only from 10.8% in 2005 data refer to the 174 economies included in Doing Business 2006 (2004). Eleven economies were added in subsequenttotal tax rate, 13.3 percentage points on to 11% in 2009. But the share of revenue years. The ﬁgure shows data for the ﬁnancial years 2004average since 2005. Some of this reduc- coming from taxes on goods and services (measured by the paying taxes indicators in Doing Business 2006) and 2011 (measured in Doing Business 2013).tion came from the introduction of VAT, increased from 11.9% to 24.6%.7 Source: Doing Business database.FIGURE 15.2 Tax compliance simpliﬁed the most in Eastern Europe and Central Asia Many African economies also reduced Average payments (number per year) proﬁt tax rates in the past 8 years, reduc- ing the share of proﬁt taxes in the total tax OECD high income DB2013 rate by 0.9 percentage point on average DB2006 in the region. But the biggest reduction in this share occurred in OECD high-income Middle East & North Africa DB2013 DB2006 economies, where it fell by 4.1 percent- age points on average. Over the same East Asia & Pacific DB2013 DB2006 period tax revenue increased slightly as a percentage of GDP in Sub-Saharan Africa Eastern Europe & Central Asia DB2013 DB2006 and remained relatively stable in OECD high-income economies.8 South Asia DB2013 DB2006 Such reforms have had positive effects. Latin America & Caribbean DB2013 Matching the data available since 2005 DB2006 on total tax rates with investment data Sub-Saharan Africa DB2013 indicates that a reduction of 1 percent- DB2006 20 age point in the total tax rate is linked to 0 10 30 40 50 60 an increase in investment equivalent to Profit taxes Labor taxes Other taxes 1% of GDP.9Note: To ensure an accurate comparison, the figure shows data for the same sample of 174 economies for both DB2006(2004) and DB2013 (2011) and uses the regional classifications that apply in 2012. The economies added to the Doing Belarus has advanced the furthest to-Business sample after 2004 and therefore excluded here are The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus, ward the frontier in regulatory practiceKosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar. DB2006 data are adjusted for any data revisions and changesin methodology. in paying taxes since 2004 (table 15.4).Source: Doing Business database. Embarking on an ambitious tax reform in

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84 DOING BUSINESS 2013 TABLE 15.4 Who has narrowed the distance FIGURE 15.4 Broad tax reform in Belarus reduces payments, time and total tax rate to frontier in paying taxes the Payments (number per year) most since 2004? Total tax rate (% of profit) Time (hours) Improvement in 150 1,000 distance to frontier Most improved (percentage points) Belarus 61 (0Æ61) 120 800 Colombia 47 (13Æ60) 90 600 Georgia 47 (39Æ86) China 42 60 400 (19Æ61) Azerbaijan 37 (38Æ75) 30 200 Ukraine 31 (16Æ47) Argentina 30 0 0 (14Æ44) 2004 2005 2006 2007 2008 2009 2010 2011 Sierra Leone 30 Payments Total tax rate Time (34Æ64) Uruguay 30 Source: Doing Business database. (31Æ61) Yemen, Rep. 30 (33Æ63) systems to lessen the administrative NOTES burden for taxpayers. These efforts Note: The distance to frontier measure shows how far This topic note was written by Nan Jiang, on average an economy is from the best performance simpliﬁed requirements for ﬁrms, reduc- achieved by any economy on each Doing Business Pawel Kopko, Nina Paustian, Momodou ing the number of annual tax payments indicator—in this case for the paying taxes indicators Salifu Sey and Tea Trumbic. recorded by Doing Business from 27 in since 2004. The measure is normalized to range 1. Companies sometimes prefer more 2007 to 6 in 2011 and the time to comply between 0 and 100, with 100 representing the best performance (the frontier). The data refer to the 174 frequent payments, to smooth cash ﬂow, with major taxes from 549 hours to 337. economies included in Doing Business 2006 (2004). and less frequent ﬁling. 5. At the same time Moldova reduced the Eleven economies were added in subsequent years. The first column lists the top 10 most improved economies 2. The threshold is set at the 15th percentile withholding tax for dividends from 15% in order; the second shows the absolute improvement of the total tax rate distribution, and this to 6% and lowered the withholding tax in the distance to frontier between financial years 2004 year is 25.7%. All economies with a total for payments other than dividends from and 2011. tax rate below this level receive the same 15% to 12%. In addition, it introduced a Source: Doing Business database. percentile ranking on this component. The new tax regime for small and medium- threshold is not based on any economic size enterprises under which small 2005, Belarus abolished several taxes, theory of an “optimal tax rate” that mini- companies pay a single tax of 3% of mizes distortions or maximizes efficiency revenues from operational activities. reduced tax rates, broadened the tax in the tax system of an economy overall. 6. VAT is collected by the ﬁrm and its base, simpliﬁed ﬁling forms and the tax Instead, it is mainly empirical in nature, set cost is fully passed on to the consumer. law and invested in electronic systems at the lower end of the distribution of tax Because the ﬁrm has to make the pay- that make it easier to ﬁle and pay taxes. rates levied on medium-size enterprises ments and spend time ﬁlling out the in the manufacturing sector as observed returns, VAT is included in the indicators These changes reduced the number of through the paying taxes indicators. This on payments and time. But the amount annual payments from 125 to 10, the reduces the bias in the indicators toward of VAT paid is not included in the total time from 987 hours a year to 338 and economies that do not need to levy sig- tax rate. Cascading sales tax, which is the total tax rate from 137.5% of proﬁt to niﬁcant taxes on companies like the Doing paid at every point of the supply chain, Business standardized case study company is included in the total tax rate, because 60.7% (ﬁgure 15.4). The efforts to make because they raise public revenue in the ﬁrm cannot deduct the sales tax it tax compliance easier and less costly other ways—for example, through taxes pays on its supplies from the amount it are paying off. While 1,681 new limited on foreign companies, through taxes on owes on its sales. Economies introducing liability corporations registered for the sectors other than manufacturing or from VAT regimes to replace the sales tax natural resources (all of which are outside regime have therefore seen a reduction ﬁrst time in 2005 in Belarus, 6,142 did the scope of the methodology). in their total tax rate. so in 2011. Indeed, the total number 3. One of the economies added to the 7. World Bank, World Development registered in this period increased by sample in this year’s report, Malta, has Indicators database, http://data 68.9% (from 27,619 to 46,653).10 offered electronic ﬁling for several years .worldbank.org/. and so is included in the count for 2010. 8. World Bank, World Development 4. Mexico, for example, has relied heavily Indicators database, http://data on technology and the use of electronic .worldbank.org/.

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PAYING TAXES 859. Following Eifert (2009) and Djankov, McLiesh and Ramalho (2006), the analysis controls for government consumption, institutional quality and corruption perception. It also controls for total trade openness and rents from natural resources.10. World Bank Group Entrepreneurship Snapshots. The full data set is available on the Doing Business website (http:// www.doingbusiness.org).

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86 Trading across borders  Trading across borders remains “Inefficiencies in processing and clearing TABLE 16.1 Where is trading across borders easiest in Singapore. goods put traders in developing countries easiest—and where most at a competitive disadvantage,” declared difﬁcult?  From June 2011 to June 2012 Doing Easiest RANK Most difﬁcult RANK the heads of the World Bank and regional Business recorded 22 reforms Singapore development banks in a statement urg- 1 Niger 176 making it easier to trade across Hong Kong ing the international community to 2 Burundi 177 borders. SAR, China commit to a new WTO trade facilitation Korea, Rep.  South Africa made the biggest 3 Afghanistan 178 agreement. “Developing countries stand Denmark improvement in the ease of trading 4 Iraq 179 to gain the most from improving trade United Arab across borders in the past year. 5 Chad 180 facilitation. The right support will help Emirates  Georgia has made the greatest traders in poorer countries compete and Finland 6 Congo, Rep. 181 progress toward the frontier in integrate into global supply chains.”1 Estonia 7 Central African 182 Republic regulatory practice in trading To shed light on the bureaucratic and Sweden 8 Kazakhstan 182 across borders since 2005. Among logistical hurdles facing traders, Doing Panama 9 Tajikistan 184 the 10 economies making the most Business measures the time and cost Israel 10 Uzbekistan 185 progress, 4 are in Sub-Saharan (excluding tariffs) associated with ex- Note: Rankings are the average of the economy’s Africa. rankings on the documents, time and cost required porting and importing by sea transport to export and import. See the data notes for details.  The most common feature of Economies shown with the same number are tied in the and the number of documents necessary trade facilitation reforms in the ranking. to complete the transaction.2 The indica- Source: Doing Business database. past 8 years was the introduction tors cover documentation requirements or improvement of electronic and procedures at customs and other submission and processing. WHO REFORMED IN TRADING regulatory agencies as well as at the port.  Economies in Latin America and They also cover logistical aspects, includ- ACROSS BORDERS IN 2011/12? the Caribbean have made the ing the time and cost of inland transport In 2011/12 South Africa improved the biggest reductions in the time to between the largest business city and the most in the ease of trading across trade across borders since 2005. main port used by traders. As measured borders as measured by Doing Business. Those in the Middle East and North by Doing Business, trading across borders Through its customs modernization Africa have made the biggest remains easiest in Singapore (tables 16.1 program it implemented measures that reductions in the documents and 16.2). reduced the time, cost and documents required to export and import. required for international trade (ﬁgure For more information on good Outdated and inefficient border proce- 16.1). Improvements in South Africa have practices and research related dures, inadequate infrastructure and lack effects throughout southern Africa. Since to trading across borders, visit of reliable logistics services often mean overseas goods to and from Botswana, http://www.doingbusiness.org/data/ high transactions costs and long delays, Lesotho, Swaziland and Zimbabwe tran- exploretopics/trading-across-borders. particularly for landlocked economies.3 sit through South Africa, traders in these For more on the methodology, see the The more costly and time consuming it economies are also enjoying the beneﬁts. section on trading across borders is to export or import, the more difficult in the data notes. it is for local companies to be competi- South Africa was not alone. Doing tive and to reach international markets. Business recorded reforms making it Indeed, a study in Sub-Saharan Africa easier to trade across borders in 21 other shows that reducing inland travel time by economies in the past year, for a total of 1 day increases exports by 7%.4 22 (table 16.3). Latin America and the

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88 DOING BUSINESS 2013 TABLE 16.3 Who made trading across borders easier in 2011/12—and what did they do? TABLE 16.4 Who has narrowed the distance Feature Economies Some highlights to frontier in trading across borders the most since 2005? Introduced or Belize; Botswana; Lao PDR launched the ASYCUDA electronic data inter- improved electronic Burundi; Czech change system at the Thanaleng–Friendship Bridge border Improvement in submission and Republic; Dominica; crossing. distance to frontier processing Grenada; Hungary; Most improved (percentage points) Lao PDR; Niger; Georgia 49 Qatar; South Africa; (28Æ77) Spain; Sri Lanka; Trinidad and Tobago; France 31 Uruguay (57Æ88) Improved customs Georgia; Jamaica; Jamaica facilitated overnight processing of customs decla- Rwanda 30 administration Malawi; South Africa rations by extending the hours for lodging customs entries. (0Æ30) Introduced electronic Benin; Portugal; Benin implemented an electronic single-window and Thailand 28 single window Uzbekistan unique payment system integrating customs, control (52Æ80) agencies, port authorities and other service providers at the Djibouti 25 Cotonou port. (50Æ75) Introduced or Botswana; Lao PDR Botswana introduced a scanner at the Kopfontein– Madagascar 25 improved risk-based Tlokweng border crossing, replacing physical inspections. inspections (38Æ63) Trucks are selected for scanning on the basis of their risk. Senegal 23 Improved port Netherlands; The Netherlands introduced a new web-based system for procedures (48Æ71) Uruguay cargo release at the port terminals in Rotterdam. Romania 20 Source: Doing Business database. (50Æ70) Kenya 19 (26Æ45) of economies with such reforms: in both a standardized cargo of goods by ocean Korea, Rep. 17 (74Æ91) regions 83% implemented at least 1. Latin transport (with every official procedure Note: The distance to frontier measure shows how far America and the Caribbean had the next recorded but actual time in the ocean ex- on average an economy is from the best performance largest share, with 73% of economies achieved by any economy on each Doing Business cluded). Today it takes only 22.2 days on indicator since 2005—in this case for the trading across implementing at least 1, followed closely borders indicators. The measure is normalized to range average to export and 25.0 to import (ﬁg- between 0 and 100, with 100 representing the best by Sub-Saharan Africa with 72%. The performance (the frontier). The data refer to the 174 share in East Asia and the Paciﬁc was ure 16.3). Analysis shows that such gains economies included in Doing Business 2006 (2005). have had positive effects. Matching the Eleven economies were added in subsequent years. The 63%, in South Asia 50% and among the ﬁrst column lists the top 10 most improved economies in OECD high-income economies 42%. data available since 2005 on the time to order; the second shows the absolute improvement in the distance to frontier between 2005 and 2012. trade across borders with GDP per capita Source: Doing Business database. Thanks to these efforts, trading across growth data indicates that a reduction borders as measured by Doing Business has become faster and easier around of 4 days in the time to import or export the world. In 2006 it took 26.0 days on is linked to an increase in the per capita While many economies have made average to export and 30.4 days to import growth rate of 0.1 percentage point.5 strides in improving international trade practices, Georgia has made the greatest FIGURE 16.2 Sub-Saharan Africa leads in number of trade facilitation reforms progress toward the frontier in regula- Number of Doing Business reforms making it easier to trade across borders by Doing tory practice in trading across borders Business report year since 2005 (table 16.4). It did so through Sub-Saharan Africa DB2006 improvements over several years. In (46 economies) 5 5 6 11 14 9 7 6 DB2007 2006 Georgia enacted a new customs Latin America & Caribbean (33 economies) 5 3 6 8 7 4 2 6 code, simplifying the customs clearance DB2008 Middle East & North Africa DB2009 process and better aligning it with inter- (19 economies) 4 2 4 4 6 6 21 Eastern Europe & Central Asia DB2010 national good practices. Three years later (24 economies) 1 3 3 4 6 6 22 DB2011 it reduced the cost to trade and simpli- East Asia & Pacific (24 economies) 4 3 2 4 2 5 11 DB2012 ﬁed the documentation requirements OECD high income DB2013 (31 economies) 4 11 2 2 2 4 5 for imports and exports. And in the past South Asia 12 2 1111 year Georgia created customs clearance (8 economies) zones—one-stop shops for different 0 10 20 30 40 50 60 70 clearance processes. Note: An economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2006 (2005) includes 174 economies. The sample for DB2013 (2012) also includes The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar, for a total of 185 economies. The most common feature of trade facilita- Source: Doing Business database. tion reforms in all regions over the past 8

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TRADING ACROSS BORDERS 89FIGURE 16.3 Large decline in document preparation time across regions years was the introduction or improvement of electronic submission and processing Average time to export (days) of customs declarations—implemented in 110 economies. The improvement of OECD high income DB2013 DB2007 customs administration was the second most common feature, undertaken by 61 Latin America & Caribbean DB2013 DB2007 economies. Improving port procedures was the third most common among Middle East & North Africa DB2013 DB2007 economies in Sub-Saharan Africa and the Middle East and North Africa. By contrast, East Asia & Pacific DB2013 DB2007 among other economies, including those in Eastern Europe and Central Asia, Latin Eastern Europe & Central Asia DB2013 America and the Caribbean and the OECD DB2007 high-income group, introducing or improv- Sub-Saharan Africa DB2013 ing risk-based inspection systems was DB2007 more common. South Asia DB2013 DB2007 0 10 20 30 40 NOTES Average time to import (days) This topic note was written by Iryna Bilotserkivska, Robert Murillo and Mikiko OECD high income DB2013 DB2007 Imai Ollison. 1. Zoellick and others 2012. Latin America & Caribbean DB2013 DB2007 2. To ensure comparability across econo- mies, the Doing Business methodology Middle East & North Africa DB2013 assumes that trade is by sea transport DB2007 and therefore may not capture regional trade in some regions, such as Sub- East Asia & Pacific DB2013 DB2007 Saharan Africa and Eastern Europe and Central Asia. While sea transport still Eastern Europe & Central Asia DB2013 accounts for the majority of world trade, DB2007 regional trade is becoming increasingly important for small and medium-size Sub-Saharan Africa DB2013 DB2007 enterprises. 3. Arvis, Marteau and Raballand 2010. South Asia DB2013 DB2007 4. Freund and Rocha 2011. The authors use 0 10 20 30 40 50 a modiﬁed gravity equation that controls for importer ﬁxed effects and exporter Document Customs clearance Port and Inland remoteness to understand whether preparation and technical control terminal handling transport different types of export costs affect trade differently. All 3 techniques usedNote: To ensure an accurate comparison, the ﬁgure shows data for the same sample of 174 economies for both DB2007 to analyze the effect on trade values of(2006) and DB2013 (2012) and uses the regional classiﬁcations that apply in 2012. The economies added to the Doing export times for key components lead toBusiness sample after 2006 and therefore excluded here are The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus,Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar. DB2007 data are adjusted for any data revisions and changes in the same conclusion: that inland transitmethodology. delays have a robust negative effect onSource: Doing Business database. export values. 5. Results are based on Arellano-Bond dynamic panel estimation to control for economic cycle and time-invariant country-speciﬁc factors. Following Eifert (2009) and Djankov, McLiesh and Ramalho (2006), the analysis controls for initial level of education, initial level of income per capita and institutional quality. It also controls for total trade openness and rents from natural resources.

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90 Enforcing contracts  Enforcing contracts is easiest in A judicial system that provides effective Among the 185 economies covered by Luxembourg, where it takes 321 commercial dispute resolution is crucial Doing Business, Luxembourg has the top days and 26 procedures and costs to a healthy economy.1 Without one, ranking on the ease of enforcing contracts 9.7% of the value of the claim. ﬁrms risk ﬁnding themselves operating in (table 17.1). But contract enforcement is an environment where compliance with fastest in Singapore, where it takes only  From June 2011 to June 2012 contractual obligations is not the norm. 150 days to resolve the standardized case Doing Business recorded 11 While using alternative dispute resolu- measured by Doing Business (table 17.2). reforms making it easier to enforce contracts. tion systems may have beneﬁts, Doing Business focuses on how public institu- WHO REFORMED IN  In the past year Poland improved tions function in the case of a commercial ENFORCING CONTRACTS the most in the ease of enforcing dispute.2 Doing Business measures the IN 2011/12? contracts. time, cost and procedural complexity of From June 2011 to June 2012 Doing  Bhutan has advanced the furthest resolving a commercial lawsuit between Business recorded 11 reforms making it toward the frontier in regulatory 2 domestic businesses. The dispute easier to enforce contracts and 1 making it practice in contract enforcement involves the breach of a sales contract more difficult (table 17.3). Brazil, Rwanda since 2005. Among the 10 worth twice the income per capita of the and Saudi Arabia improved electronic economies making the greatest systems in their courts. Such systems of- economy. The case study assumes that progress in this period, 6 are in fer multiple beneﬁts. By allowing litigants the court hears arguments on the merits Sub-Saharan Africa. to ﬁle complaints electronically in com- and that an expert provides an opinion on  Introducing specialized commercial the quality of the goods in dispute. This mercial cases, they can speed up the ﬁling courts or divisions was the most distinguishes the case from simple debt and service process. They can prevent the common feature of reforms making enforcement. The time, cost and proce- it easier to enforce contracts in the dures are measured from the perspective TABLE 17.1 Where is enforcing contracts past 8 years. of an entrepreneur (the plaintiff) pursu- easiest—and where most difﬁcult? For more information on good ing the standardized case through local Easiest RANK Most difﬁcult RANK practices and research related to courts. Luxembourg 1 Syrian Arab 176 enforcing contracts, visit http://www Republic .doingbusiness.org/data/ Efficiency in this process matters. A Korea, Rep. 2 Central African 177 exploretopics/enforcing-contracts. study in Eastern Europe found that in Republic For more on the methodology, see the countries with slower courts, ﬁrms on av- Iceland 3 Benin 178 section on enforcing contracts in the erage tend to have less bank ﬁnancing for Norway 4 Honduras 179 data notes. new investment. The study shows that Germany 5 Suriname 180 reforms in other areas, such as creditors’ United States 6 São Tomé and 181 Príncipe rights, help increase bank lending only Austria 7 Bangladesh 182 if contracts can be enforced before the France 8 Angola 183 courts.3 Another recent study, analyzing Finland 9 India 184 98 developing economies, suggests that Hong Kong 10 Timor-Leste 185 foreign direct investment tends to be SAR, China greater where the cost of contract en- Note: Rankings are the average of the economy’s rankings on the procedures, time and cost to resolve forcement in debt collection and property a commercial dispute through the courts. See the data eviction cases is lower, particularly when notes for details. Source: Doing Business database. the host economy is more indebted.4

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92 DOING BUSINESS 2013 TABLE 17.3 Who made enforcing contracts easier in 2011/12—and what did they do? year the implementation of electronic Feature Economies Some highlights ﬁling systems was among the most com- Increased procedural Georgia; Poland; The Slovak Republic amended its civil procedure code to mon improvements recorded by Doing efﬁciency at main trial Slovak Republic; simplify and speed up proceedings and to limit obstructive Business. Today 19 economies allow elec- court Turkey tactics by the parties to a case. tronic ﬁling of complaints, including 12 Introduced Brazil; Rwanda; Saudi Arabia expanded the computerization of its courts or expanded Saudi Arabia and introduced an electronic ﬁling system for commercial OECD high-income economies. Among computerized case cases, allowing attorneys to submit a summons online all OECD high-income economies, the management system through a dedicated website. average time for ﬁling and service fell by 9 Signiﬁcantly increased Benin; Liberia; Poland appointed more judges and bailiffs in commercial number of judges Poland courts. days between 2007 and 2012 (see ﬁgure Made enforcement Poland; Serbia Serbia introduced private bailiffs. 17.2). of judgment more efﬁcient Specialized courts tend to improve effi- Introduced specialized Cameroon; Liberia Liberia launched a specialized commercial court in Novem- ciency.5 Creating specialized commercial commercial court ber 2011 and has appointed 3 new judges for the court. courts can result in faster and less costly Source: Doing Business database. contract enforcement, particularly where the commercial caseload is large. Today concept of managing judges as well as deliver a complaint to the defendant in 82 of the 185 economies covered by Doing enforcement judges. less than 60 days. Business have a dedicated stand-alone court, a specialized commercial section Serbia made it easier to enforce contracts WHAT HAVE WE LEARNED within an existing court or specialized by introducing a private bailiff system, FROM 8 YEARS OF DATA? judges within a general civil court. In 7 providing competitive options for enforc- In the past 8 years Doing Business re- Sub-Saharan African economies that ing a binding decision. The winning party corded 116 reforms that helped improve introduced commercial courts or sections in a commercial case may now choose court efficiency in commercial dispute in the past 10 years—the Democratic between private and court bailiffs to carry resolution. Sub-Saharan Africa had the Republic of Congo, Ghana, Lesotho, most reforms, with 35 (ﬁgure 17.1). But Mauritania, Mozambique, Nigeria and out enforcement proceedings. Eastern Europe and Central Asia, the Rwanda—the average time to resolve the Georgia, Poland, the Slovak Republic and region where contract enforcement is standardized case measured by Doing Turkey amended the procedural rules the fastest on average (ﬁgure 17.2), had Business dropped by more than 5 months. applying to commercial cases, mainly to the largest share of economies with such Poland improved the most in the ease of simplify and speed up proceedings and to reforms: 15 of 24 economies in the region enforcing contracts in the past year and is limit obstructive tactics by the parties to a implemented at least 1. also among the 10 economies advancing case. New legislation adopted in January Some economies introduced specialized the furthest toward the frontier in regu- 2012 by the Slovak Republic imposes commercial courts. Others overhauled latory practice in this area since 2005 new individual deadlines on the parties the organization of their courts or their (table 17.4). In 2003 resolving a commer- at different stages of the proceedings. system of judicial case management for cial dispute in Warsaw took 1,000 days. For example, courts are now obliged to commercial dispute resolution. In the past Today, thanks to extensive efforts, it takes 685 (ﬁgure 17.3). FIGURE 17.3 How Poland cut the time to enforce contracts by a third in Warsaw What did Poland do? In 2007 it started deregulating the bailiff profession, Time (days) increasing the number of service provid- 980 1,000 ers. That same year it created its ﬁrst 830 Introduced a simpler electronic court, in Lublin; the new court, 800 procedure for small claims 685 which processes cases and assigns them Deregulated the bailiff 600 profession and created to judges in only 2–3 weeks on average, the first electronic court Cut procedural steps in commercial cases and has already dealt with more than 3 million 400 appointed more judges and bailiffs cases. In a parallel effort Poland launched 200 Introduced court management systems in 2003 and launched the Praetor software in 2007, an information technology system in streamlining document handling and improving case monitoring 2003, then the Praetor software in 2007, 0 improving the internal operations of 2005 2007 2012 courts over time. The software system Source: Doing Business database. facilitates the circulation of documents

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ENFORCING CONTRACTS 93TABLE 17.4 Who has narrowed the distance within the court and allows users to trace to frontier in enforcing contracts the history of the decision stage for par- the most since 2005? ticular documents. By 2007 the imple- Improvement in mentation of these court management distance to frontierMost improved (percentage points) systems had already reduced the backlogBhutan 35 of cases by 36% compared with 2004. (31Æ66)Gambia, The 14 Efforts are ongoing. In May 2012 Poland (50Æ64) amended its civil procedure code,Poland 13 eliminating separate procedural steps in (50Æ63) commercial cases. Poland also appointedBotswana 11 (56Æ67) more judges and bailiffs to the district andGeorgia 11 regional commercial courts, expanded (59Æ70) the role of judges in managing processesMozambique 10 (particularly in the introduction of evi- (29Æ39) dence), expanded the responsibilities ofNigeria 8 (48Æ56) assistant judges (such as in overseeingLesotho 7 bailiffs and enforcing court judgments), (44Æ51) allowed new electronic processes and in-Mali 6 troduced economic incentives for debtors (43Æ49) to comply with judgments.Portugal 6a (64Æ70)Note: The distance to frontier measure shows how faron average an economy is from the best performance NOTESachieved by any economy on each Doing Business This topic note was written by Joyce Antoneindicator since 2005—in this case for the enforcingcontracts indicators. The measure is normalized to range Ibrahim and Julien Vilquin.between 0 and 100, with 100 representing the best 1. Ramello and Voigt 2012.performance (the frontier). The data refer to the 174economies included in Doing Business 2006 (2005). 2. World Bank Facility for InvestmentEleven economies were added in subsequent years. The Climate Advisory Services 2011.ﬁrst column lists the top 10 most improved economies inorder; the second shows the absolute improvement in the 3. Safavian and Sharma 2007.distance to frontier between 2005 and 2012. 4. Ahlquist and Prakash 2010.a. Ethiopia, FYR Macedonia and Malaysia also have an 5. Botero and others 2003.improvement of 6 percentage points.Source: Doing Business database.

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94 Resolving insolvency  Creditors of ﬁrms facing insolvency Driven by steeper labor costs and the high affected by the key variables of time, cost beneﬁt from the highest recovery fuel prices and dampened travel demand and outcome (tables 18.1 and 18.2). rate in Japan. resulting from the global ﬁnancial crisis, Whether insolvency proceedings are  From June 2011 to June 2012 Doing American Airlines, the third largest U.S. efficient matters not just for ﬁrms that Business recorded 17 reforms carrier, ﬁled for Chapter 11 bankruptcy in are struggling. A recent study shows aimed at improving insolvency November 2011. Its core business is still